Annual Report - tcmb.gov.tr

2018

Annual Report

TÜRKİYE CUMHURİYET MERKEZ BANKASI(CENTRAL BANK OF THE REPUBLIC OF TURKEY)İdare Merkezi (Head Office) Hacı Bayram Mahallesi İstiklal Caddesi No:10 06050 Ulus, Altındağ / Ankara www.tcmb.gov.tr

Annual Report 2018

The Central Bank of the Republic of Turkey held the 2nd International Photography Contest named “Economy and Crafts.” Three award-winning pieces of this contest are included as separators among sections of the 2018 Annual Report:· “Life and Livelihood” by Abhijit Banerjee· “The Pinnacle” by Haşim Kandilcioğlu· “The Saddlemaker” by Hakan Çöplü.

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Central Bank of the Republic of Turkey Annual Report 2018

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CENTRAL BANK OF THE REPUBLIC OF TURKEY

Trade Registry Number: 2692018 Annual Report Drawn up by the Board for theEighty Seventh Accounting Year Submitted to the General Assembly of Shareholders on 15 March 2019Ankara2019

AddressTürkiye Cumhuriyet Merkez Bankası(Central Bank of the Republic of Turkey)İdare Merkezi (Head Office)Hacı Bayram Mahallesiİstiklal Caddesi No: 1006050 Ulus Altındağ / Ankara

Phone: +90 (312) 507 50 00Fax: +90 (312) 507 56 40Website: www.tcmb.gov.trRegistered e mail: [email protected]

@Merkez_Bankasi (Turkish) @CentralBank_TR (English) @TCMBBlog (CBRTBlog )

Türkiye Cumhuriyet Merkez Bankası




ISSN (On-line) 1300-4573ISBN (On-line) 978-605-4911-82-0

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Portrait, E 9 Emission GroupDesigns for the obverses of Series I, 20 TL and 50 TL denomination notes

are portrayed.

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Foreword viii

Central Bank of the Republic of Turkey 2014-2018 Strategic Plan x

A Glance at 2018 xii

2018 in Numbers xiv

PART 1 GENERAL INFORMATION 1

1.1 Governing Bodies 3

1.2 Staff 14

PART 2 ACTIVITIES AND MAJOR DEVELOPMENTS 15

2.1 Price Stability, Financial Stability and Monetary Policy 16

2.2 Operational Framework of Monetary Policy 23

2.3 Financial Stability Developments and Activities 29

2.4 Financial Infrastructure 32

2.5 Banknotes in Circulation 36

2.6 Foreign Exchange Reserve and Risk Management 38

2.7 Corporate Risk Management Activities 40

2.8 2019-2021 Strategic Plan Activities 42

2.9 European Union Harmonization Activities 43

2.10 Communication Activities 45

2.11 International Cooperation and Events 50

2.12 Research and Development Activities 56

2.13 Training Activities 59

2.14 Culture, Art and Sports Activities 63

2.15 Corporate Social Responsibility Activities 65

2.16 Corporate Transformation Activities 66

PART 3 FINANCIAL STATEMENTS 67

3.1 Balance Sheet as of 31 December 2018 69

3.2 Balance Sheets as of 31 December 2018 and 2017 71

3.3 Profit and Loss Statements for 2018 and 2017 73

3.4 Explanations 74

3.5 Explanations on Operating Expenses 94

3.6 Audit at the CBRT and Audit Reports 95

Contents

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PART 1 GENERAL INFORMATIONChart 1.2.1 Number of Employees from 2008 to 2018 14Chart 1.2.2 Staff by Age Groups 14Chart 1.2.3 Staff by Education Level 14

PART 2 ACTIVITIES AND MAJOR DEVELOPMENTSChart 2.1.2.1 Short-term Rates 17Chart 2.1.2.2 CBRT Funding 17Chart 2.1.2.3 Exchange Rate Volatility Implied by Options 18Chart 2.1.2.4 Yield Curve 18Chart 2.1.2.5 Portfolio Inflows to Emerging Economies 19Chart 2.1.2.6 Annual Credit Growth Rates 19Chart 2.1.2.7 Inflation and Targets 20Chart 2.1.2.8 Inflation Expectations 20Chart 2.1.2.9 Gross Domestic Product and Final Domestic Demand 21Chart 2.1.2.10 Current Account Balance 21Chart 2.1.2.11 Real Effective Exchange Rate 22Chart 2.1.2.12 Unemployment Rates and Labor Participation Rate 22Chart 2.2.3.1 TL Reserve Requirement Ratios 25Chart 2.2.3.2 FX Reserve Requirement Ratios 25Chart 2.2.3.3 Utilization of ROM’s FX Facility 26Chart 2.2.3.4 Utilization of ROM’s Gold Facility 26Chart 2.2.3.5 Amount of FX and Gold within ROM 26Chart 2.2.3.6 Amount of FX Required Reserves 26Chart 2.2.3.7 Composition of Required Reserves Maintained for Turkish Lira Liabilities (Before the Euro

Maintenance Facility)27

Chart 2.2.3.8 Composition of Required Reserves Maintained for Turkish Lira Liabilities (After the Euro Maintenance Facility)

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Chart 2.4.1.1 Total Value of Payments Processed through CBRT Payment Systems 32Chart 2.4.1.2 Total Number Payment Messages Processed through CBRT Payment Systems 32Chart 2.4.2.1 Checks Cleared by the Check Clearing System 33Chart 2.5.1 Value and Number of Banknotes in Circulation 36Chart 2.5.2 Number of Banknotes in Circulation by Denomination 36Chart 2.5.3 Annual Average Value of Banknotes in Circulation / GDP 37Chart 2.6.1 CBRT FX and Gold Reserves between 2001 and 2018 39Chart 2.6.2 CBRT FX and Gold Reserves in 2018 39Chart 2.13.1.1 Training Activities for CBRT Employees 59Chart 2.13.2.1 Breakdown of Participation in ISCB International Training Programs 61Chart 2.13.2.2 Regional Breakdown of Participation from Other Countries in ISCB International Training

Programs61

Chart 2.13.3.1 Short-Term Non-CBRT Training Programs 62Chart 2.13.3.2 CBRT Employees Attending Graduate Programs 62

Charts

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PART 2 ACTIVITIES AND MAJOR DEVELOPMENTSTable 2.5.1 Banknotes in Circulation by 31.12.2018 36Table 2.9.1 The Status of the Chapters in which the CBRT Participated in the Screening Process

and Accession Negotiations 43Table 2.10.4.1 Meetings Held in 2018 49

PART 3 FINANCIAL STATEMENTSTable 3.4.2.1.1 Gold 79Table 3.4.2.2.1 Foreign Banknotes 80Table 3.4.2.3.1 Foreign Correspondents (Assets) 80Table 3.4.2.3.2 Foreign Banks (Liabilities) 80Table 3.4.2.4.1 Balances Arising from Turkey’s Membership in the IMF 81Table 3.4.2.5.1 Securities 81Table 3.4.2.6.1 Lending / Liabilities Related to Monetary Policy Operations 82Table 3.4.2.7.1 Domestic Banks 82Table 3.4.2.8.1 Credits and Claims under Legal Proceedings 83Table 3.4.2.9.1 Share Participations 84Table 3.4.2.9.2 Movement in Share Participations 84Table 3.4.2.10.1 Movement in Fixed Assets 84Table 3.4.2.11.1 Other Assets 85Table 3.4.2.12.1 Currency Issued 85Table 3.4.2.13.1 Deposits 86Table 3.4.2.14.1 Taxes to be Paid 87Table 3.4.2.14.2 Temporary Differences and Deferred Income Tax Assets / Liabilities 87Table 3.4.2.14.3 Deferred Tax Asset / Liability Movement 88Table 3.4.2.15.1 Provisions 88Table 3.4.2.15.2 Change in Retirement Pay and Employment Termination Benefit Liabilities 89Table 3.4.2.16.1 Capital and Reserves 89Table 3.4.2.16.2 Shareholders of the CBRT 90Table 3.4.2.17.1 Revaluation 90Table 3.4.2.18.1 Other Liabilities 91Table 3.4.2.20.1 Profit / Loss Statement 92Table 3.4.2.21.1 Distribution of Profit 93Table 3.5.1 Distribution of Expenses 94

Tables

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Abbreviations

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BAT Banks Association of TurkeyBCBS Basel Committee on Banking SupervisionBES Right to InformationBIS Bank for International SettlementsBIST Borsa IstanbulBPP Banknote Printing PlantBPS Banknote Processing SystemsCBRT Central Bank of the Republic of TurkeyCİMER Presidency of the Republic of Turkey Directorate of CommunicationsCMS Cash Management SystemCPMI Committee on Payments and Market InfrastructuresCRA Credit Rating AgencyDCM Decentralized Cash ManagementECB European Central BankEDDS Electronic Data Delivery System EFC Economic & Financial CommitteeEME Emerging Market EconomiesERP Economic Reform ProgramsEU European UnionFMI Financial Market InfrastructuresFood Committee Food and Agricultural Product Markets Monitoring & Evaluation CommitteeFSC Financial Stability CommitteeFSB Financial Stability BoardFX Foreign ExchangeFXRIC Foreign Exchange Risk Management and Investment CommitteeGDDS Government Domestic Debt SecuritiesGDP Gross Domestic ProductGNAT Grand National Assembly of TurkeyIBAN International Bank Account NumberICH Interbank Check Clearing House

IFC Irving Fisher Committee on Central Bank StatisticsIILM International Islamic Liquidity Management CorporationIMF International Monetary FundIMM Interbank Money MarketIOSCO International Organization of Securities Commissions Bank StatisticsISCB Istanbul School of Central BankingIT Information TechnologiesLLW Late Liquidity WindowMENA Middle East and North AfricaMPC Monetary Policy CommitteeMPTS Mastercard Payment Transaction Services TurkeyOIC Organization of Islamic CooperationOMO Open Market OperationsREAL Real Economic Activity LensROM Reserve Options MechanismRTGS Real Time Gross SettlementSDR Special Drawing RightSG Strategic GoalSWIFT Society for Worldwide Interbank Financial TelecommunicationTakasbank Istanbul Clearing & Custody BankTCC Turkish Commercial CodeTL Turkish LiraTPL Tax Procedure Law Treasury Republic of Turkey Ministry of Treasury and FinanceTurk Eximbank Export Credit Bank of TurkeyTURKSTAT Turkish Statistical InstituteTUYID Turkish Investor Relations SocietyUSA United States of AmericaVIOP Futures and Options MarketWB World Bank

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Foreword

For the Central Bank of the Republic of Turkey (CBRT), 2018 was a year in which comprehensive efforts were made to achieve price stability and enhance financial stability. An integrated strategy was formulated and monetary policy tools were employed proactively to achieve lasting price stability. Moreover, further efforts were made to raise awareness of structural elements.

In 2018, the CBRT took multi-dimensional policy actions to contain the impacts of fluctuations in global financial markets, increased protectionism in international trade and the geopolitical developments on the Turkish economy and to mitigate risks. In line with this strategy, the simplification process in the monetary policy was completed. To contain the deterioration in inflation expectations and the pricing behavior, a strong monetary tightening was implemented. Moreover, to ensure efficient functioning of markets, a set of financial stability-oriented measures were taken that enhance the Turkish lira and foreign exchange liquidity management. Accordingly, the upper limit for the FX facility under the ROM in the scope of required reserves was lowered; TL and FX reserve requirement ratios were reduced, which provided the markets with liquidity; banks’ conditions for collaterals were eased and the rediscount credits were enabled to be paid in Turkish lira. In addition, the CBRT launched Turkish lira settled forward foreign exchange transactions at Borsa İstanbul Futures and Options Market with institutional and individual investors; and the Turkish Lira Currency Swap Market was opened. All these endeavors aimed at deepening of the futures markets.

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Under the scope of the holistic approach oriented towards price stability and financial stability, the CBRT contributed to the endeavors undertaken with national shareholders in 2018 with a view to enhancing policy coordination and ensuring the implementation of an effective policy mix. Accordingly, the CBRT participated in the restructured Financial Stability and Development Committee. On the price stability front, further contributions were offered to studies undertaken with the shareholders of the Food and Agricultural Product Markets Monitoring and Evaluation Committee (the Food Committee). The measures to be taken by the Food Committee regarding the pricing behavior, market mechanism, supply chain and effectiveness in production are expected to contribute to price stability in the medium term. Moreover, endeavors regarding the Systemic Risk Data Monitoring Systems designed to serve the exchange rate risk management of the corporate sector are likely to boost financial stability.

As an element to support monetary policy, communication channels were used intensively to raise public awareness by the CBRT. Accordingly, the CBRT continued activities to raise awareness of price stability and monetary policy targets by addressing all sections of the community through various platforms like the “CBRT Blog” and “Economics for All.” Through these communication channels, videos and infographics were broadcast regarding central banking, monetary policy and basic economic concepts; country-wide school visits were made and various conferences and seminars were held. Additionally, bilateral agreements were put into force to strengthen cooperation with international organizations. A joint and holistic effort was made especially in the combat with inflation through the technical meetings held with the representatives of the corporate sector, investors and analysts.

With a view to reinforcing the institutional know-how, ensuring quality improvement of the bank’s staff, monitoring global changes regarding central banking, adapting to new technologies and ensuring that they are used in monetary policy decisions, various conferences, seminars, panel discussions, and workshops were conducted at both the national and the international level at the CBRT in 2018 as well. These organizations enabled exchange of views with global stakeholders, and contributions were made to the studies undertaken at the CBRT.

Improving business processes, strengthening the institutional infrastructure and change were made integral parts of the corporate culture and corporate transformation, which was launched to provide the CBRT with a more dynamic structure and continued at full speed in 2018. Accordingly, a series of job developments and improvements were launched.

In addition to the statutorily-mandated duty of achieving price stability, the CBRT supports the balanced and sustainable growth of the Turkish economy by safeguarding financial stability as well. Consistent with the consensus reached with the government during the formulation of the New Economic Program, annual inflation for the 2019-2021 period is expected to converge to the 5-percent target after falling to single digits at end-2020. The CBRT will continue to make effective use of all available policy tools to gradually achieve that target.

Murat ÇetinkayaGovernor

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Central Bank of the Republic of Turkey 2014-2018 Strategic Plan

OUR VISIONTo be one of the World’s leading central banks, with its independence, sound organizational structure, highly qualified employees, technological advantages and capacity to achieve effective results.

OUR VALUES1. Independence

2. Transparency and Accountability

3. Credibility

4. Public Interest

5. Effectiveness and Efficiency

OUR MISSIONTo design and implement policies to achieve price stability and contribute to financial stability for the sound functioning of money, credit and capital markets along with all other sectors of the economy; manage foreign exchange and gold reserves; issue the country’s banknotes; ensure continuity of the safe circulation of banknotes; steer the development of payment and securities settlement systems, supervise them and also establish and operate systems when necessary; increase the effectiveness of the CBRT on a regional and global scale by strengthening international relations; add value to its employees, stakeholders and the community as called for by its corporate governance structure and the values of transparency and accountability.

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The strategic goals of the CBRT are defined under three domains: public, global and corporate.

Public Area

SG-1. Achieve price stability.SG-2. Contribute to financial stability.

Global Area

SG-1. Play an influential role in the international scene.SG-2. Increase prestige in the international arena through research and capacity building activities.

Corporate Area

SG-1. Execute the primary tasks on the basis of the efficiency and effectiveness principles and ensure corporate development.SG-2. Strengthen corporate identity and internal communication.

Strategic Areas and Strategic Goals

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In line with its primary objective of achieving price stability and contributing to financial stability, the CBRT continued to make use of an appropriate mix of monetary policy and liquidity tools in a way to support the predictability of the monetary policy.

• In May 2018, simplification of the monetary policy was completed and funding was made through the one-week repo rate, targeting a more predictable monetary policy.

• Besides the simplified operational framework of the monetary policy, a strong monetary tightening was delivered to contain the deterioration in inflation expectations and the pricing behavior.

• In the third quarter of 2018, the policy rate was raised by 625 basis points to limit the effects of the fluctuations in financial markets and geopolitical developments on the Turkish economy and to mitigate risks.

• Given the developments in August, the upper limit for the FX facility of the ROM under required reserves was reduced; required reserve ratios for TL and FX were lowered and markets were provided with liquidity; banks’ collateral conditions were eased; rediscount credits were enabled to be repaid in TL to support financial stability and maintain the efficient functioning of markets.

• The CBRT launched Turkish lira settled forward foreign exchange transactions at the Borsa İstanbul Futures and Options Market with corporate and individual investors; and the Turkish Lira Currency Swap Market was opened. These steps aimed at deepening of the futures markets and contributing to the exchange rate risk management of the corporate sector.

Being a pioneering institution, having attained the best standards at a global scale and welcoming improvement, the CBRT focused on transformation with a view to offering more efficient contributions to economic stability.

• In a period of inevitable transformations urged by global developments, the 2019-2021 Strategic Plan, a document of vision for the transformation process, was adopted. Accordingly, the CBRT’s five focal points were set as; “Research and Communication,” “Operational Structure,” “Technology and Infrastructure,” “Human Resources” and “the Corporate Culture.”

• The new organizational structure was enforced to boost the efficiency of the CBRT.

• The Department of Corporate Risk Management was established in 2018 to evaluate the financial, operational and legislative risks at the CBRT with a holistic approach and report these to senior management.

• Career management was redesigned to focus on expertise, plainness, understandability and the development of human resources.

• To ensure uniformity in the internal and external communication tools of the CBRT, a new corporate design identity was established in conformity with the CBRT’s corporate image, philosophy, culture and prestige.

• To lend an ear to the wishes and views of the CBRT staff, the “I Have an Idea Platform” was launched. All posts sent by the staff were considered by the top management, and those suggestions that will add value to the CBRT and the staff were put into use.

FOCUSING ON PRICE STABILITY

FOCUSING ON SUSTAINABILITY OF TRANSFORMATION

The CBRT conducted plain, efficient and bilateral communication relying on the principles of openness and transparency in the communication strategy.

• In the corporate “CBRT Blog” that enables the CBRT staff to share their views with the public, open for debate and offer timely contributions to the economic agenda, further new analyses and videos were posted and the blog website was redesigned.

• To raise awareness regarding the importance of price stability and provide different shareholders with economics training, the “Economics for All” initiative remained active. The “Economics for All in Anatolia” project was initiated to render these trainings nation-wide.

• The CBRT held face-to-face and technical meetings with domestic and foreign investors, analysts and economists to contribute to the understandability of policies.

• Further comprehensive interviews were made with firms to monitor the corporate sector and analyze the structural factors of the Turkish economy closely.

• New Regional Coordination Offices were put into effect to be constantly in communication with the corporate sector.

• The Food and Agricultural Products Markets Monitoring Committee (Food Committee), secretarial services of which are undertaken by the CBRT, continued with activities regarding the solution of structural and cyclical problems.

PLAIN, EFFECTIVE AND BILATERAL

COMMUNICATION

A Glance at 2018

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The CBRT continued to use technology and automation intensively and efficiently in all business processes.

• The CBRT website was renewed to meet the contemporary technological needs and be user-friendly.

• Digital tools were used in the efforts towards Economics for All to reach a variety of audience, and the micro site Economics for All was launched on 2 February 2018.

• Visuals and content of the CBRT mobile application were renewed.

• Electronic Data Delivery System (EDDS) mobile application was put into use.

• The Systemic Risk Data Monitoring System was designed.

In the development and implementation of economic policies under its domain, the CBRT continued to collaborate with national and international stakeholders.

• Various domestic national platforms were attended.

• International conferences and meetings were held and activities for regional cooperation were given priority.

• Studies towards reinforcing the communication and cooperation with central banks were intensified.

• Through the new memorandums of understanding signed, the scope of the CBRT’s international cooperation network was widened.

• Besides training courses on cyber security, credit reporting systems, applied econometrics, use of large data, use of derivatives of the corporate sector, financial technologies for financial stability, which enhance the efficiency and security of national payment systems, the “Balkan School of Central Banking” certificate program was held for the first time.

• The İstanbul School of Central Banking (ISCB) held many seminars and workshops attended by national and international shareholders and contributed to the targets of the CBRT.

• Exhibitions were held in Turkey and abroad of the prominent pieces from the CBRT Art Collection.

• The CBRT held the 2nd International Photography Contest to promote the corporate identity at national and international platforms, enhance cultural and artistic activities, reinforce internal and external links of communication and support the art and artists of photography.

• In total, 8,891 photographs of 2,534 artists from 75 countries competed in this contest named “Economy and Crafts.”

• Social responsibility activities were participated in and contributions were made to academic studies as donations and aid.

• The CBRT organized a variety of sport and social events in Turkey and participated in activities that were conducted abroad.

MORE INTENSIVE AND EFFICIENT USE OF

TECHNOLOGY

COORDINATION WITH NATIONAL AND

INTERNATIONAL SHAREHOLDERS

DEVELOPING CULTURAL, ARTISTIC AND SOCIAL

SENSITIVITY

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TRY 88 trillions Total Amount of Transactions

in Payment Systems

TRY 132.3 billionsAmount of Banknotes in

Circulation

5Number of Signed Memorandums of

Understanding

1.9 billions Number of Banknotes in

Circulation

2018 in Numbers

488.9 tonsGold Holdings

3,805Employees

2,021Number of Firms Interviewed Under the CBRT’s Corporate

Sector Research Program

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1,000Number of Students

Participating inCBRT University Gatherings

423

Press Releases51

Number of Investors, Analysts and Economists Met

3,829Number of Participants in the

CBRT’s Training Activities

543Number of ISCB International

Training Programs

32Number of Academic

ProgramsFinancially Supported by the

CBRT

837Number of Students

Attending the CBRT’s Introductory /

Internship Programs

Central Bank of the Republic of Turkey Annual Report 2018 Part 1 General Information

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PART 1 GENERAL INFORMATION

Photograph: Abhijit Banerjee - Life and Livelihood

Part 1 General Information Central Bank of the Republic of Turkey Annual Report 2018

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Established as a joint stock company on 30 June 1930, the CBRT commenced operations on 3 October 1931 in Ankara.

The CBRT’s capital amounts to TRY 25,000 and is divided into four classes of shares designated as “A,” “B,” “C,” and “D.” Class A shares belong to the Turkish Treasury and by law cannot amount to less than 51 percent of the Bank’s total capital. Class B shares are held by nationally-owned banks operating in Turkey. Class C shares are held by non-national banks and by privileged companies. Class D shares are held by Turkish commercial enterprises and by real persons and legal entities qualified as Turkish citizens. At end-2018, these shareholding interests corresponded to 55.12 percent (A), 25.74 percent (B), 0.02 percent (C), and 19.12 percent (D) of the CBRT’s capital.

The Grand National Assembly of Turkey delegated its constitutionally-mandated authority to print banknotes to the CBRT indefinitely. Thus, the CBRT is the sole entity in Turkey that is allowed to print and issue banknotes.

The Bank’s primary objective is defined as “achieving and maintaining price stability.” The CBRT is also granted with the authority to set and manage monetary policy along with the tools to serve this purpose. In addition, the Bank introduces regulatory measures concerning money and FX markets that will ensure stability in the financial system. On the other hand, the CBRT is also charged with supporting the government’s growth and employment policies insofar as they do not conflict with its own primary objective of price stability.

At the end of 2018, the CBRT had 20 departments and 21 branches located in various provinces, economic consultants and attaches assigned to the Turkish Ministry of Foreign Affairs representative offices in Frankfurt, London, New York, Tokyo, and Doha. Employing a total of 3,805 people within a dynamically changing structure to monitor the developments in Turkey and abroad closely, the CBRT performs its tasks while conducting its operations in accordance with the CBRT law and the duties and authorities with which it is charged.


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1.1.1 The Board

1.1 Governing Bodies


Mehmet Vehbi ÇıtakMember

Ömer DumanMember

Prof. Sabri OrmanMember

Prof. Nurullah GençMember

Derya YücelMember

Fatih GüldamlasıoğluMember


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The CBRT Board consists of the Governor and six members elected by the Bank’s General Assembly. Board members serve three-year terms, with one-third of them being replaced every year. The Governor is also chairman of the Board, which must convene at least once a month upon the Governor’s call for a meeting. A quorum of at least two-thirds of the members is required for a meeting to be held, and decisions are made by a majority of participants.

The duties and powers of the Board include deciding on the monetary policies and monetary policy instruments in line with monetary policy strategies and inflation targets; setting rules and making decisions on matters pertaining to the banknotes in circulation; determining principles and procedures and setting rules pertaining to open market operations and foreign exchange and foreign currency transactions, to rediscount and advance transactions and respective interest rates, and to reserve requirements and the management of national gold and foreign currency reserves; preparing the CBRT’s budgets, annual reports, balance sheets, profit & loss statements, and General Assembly agendas; and approving staffing decisions and actions involving the Bank’s administration, organization, services, and staff.

The Board met 21 times and passed 139 resolutions in 2018.

At the annual meeting of the CBRT General Assembly held on 12 April 2018, Nurullah Genç, whose term of office was due to expire at the end of the day on 30 April 2018, was re-elected and Derya Yücel was elected to replace Necdet Şensoy’s position to serve a three-year period beginning on 1 May 2018 and ending at the end of the day on 30 April 2021.

As of 31 December 2018, the Board consisted of the Governor Murat Çetinkaya and members Mehmet Vehbi Çıtak, Sabri Orman, Fatih Güldamlasıoğlu, Nurullah Genç, Ömer Duman and Derya Yücel.


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1.1.2 Monetary Policy Committee


Dr. Emrah ŞenerMember

Dr. Uğur Namık KüçükMember

Murat UysalMember

Ömer DumanMember

Prof. Abdullah YavaşMember


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The CBRT Monetary Policy Committee (MPC) consists of the Governor (serving as the chairman), the deputy governors, one member elected from and by the Board, and a member recommended by the Governor.

The duties and powers of the MPC consist of determining monetary policy principles and strategies aimed at ensuring price stability; collaborating with the government to set inflation targets according to monetary policy strategies; preparing periodical reports on the monetary policy objectives and practices, informing the public in line with the principles set by the government, taking measures to safeguard the domestic and international value of the Turkish lira and setting the exchange rate regime that defines the value of the lira against gold and foreign currencies in cooperation with the government.

The MPC held 9 meetings in 2018, the decisions of which were published on the CBRT’s main website.

As of 31 December 2018, the MPC consisted of the Governor Murat Çetinkaya and deputy governors Murat Uysal, Emrah Şener, Uğur Namık Küçük, the Board member Ömer Duman and the appointed member Abdullah Yavaş.


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1.1.3 Auditing Committee

Mehmet Murat ÖzdilMember

Assoc. Prof. Mehmet BabacanMember

Mehmet KayaMember

Zekeriya KayaMember


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The CBRT Auditing Committee consists of four members elected by the General Assembly. Members serve two-year terms of office.

The Auditing Committee is charged with overseeing all the CBRT operations and accounts. The Committee submits the findings to the Board and also sends one copy to the President’s Office. Upon the completion of each year, the Committee prepares a report of the respective year’s operations and accounts to be submitted to the CBRT General Assembly.

At the annual meeting of the General Assembly held on 12 April 2018, Mehmet Murat Özdil was elected as an Auditing Committee Member to replace the seat to be vacated by Mehmet Ziya Gökalp at the end of the day on 30 April 2018 to serve for two years from 1 May 2018 to 30 April 2020 (included).

By 31 December 2018, the Auditing Committee’s membership consisted of Mehmet Babacan, Mehmet Kaya, Zekeriya Kaya and Mehmet Murat Özdil.


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1.1.4 Executive Committee


Dr. Uğur Namık KüçükMember

Murat UysalMember

Dr. Emrah ŞenerMember


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The CBRT Executive Committee consists of the Governor and deputy governors. The Governor and deputy governors are appointed by the President and serve for a four-year term of Office. Executive Committee decisions require a majority of all members.

When deemed necessary, the Executive Committee pre-examines issues that require a CBRT Board resolution, and prepares proposals for the Board and also draws up regulations pertaining to the CBRT’s administration, organization, and services. Other tasks and powers of the Executive Committee include ensuring coordination in the conduct of the CBRT’s affairs and making decisions on the appointment, remuneration, dismissal, and retirement of officers and employees other than those staff appointed by the Board.

Uğur Namık Küçük was appointed as the Deputy Governor on 14 August 2018. The Deputy Governor Erkan Kilimci resigned from his position on 28 August 2018.

As of 31 December 2018, the Executive Committee consists of Governor Murat Çetinkaya and Deputy Governors Murat Uysal, Emrah Şener and Uğur Namık Küçük.


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1.1.5 Financial Benefits Provided to Senior Management

Pursuant to articles 19, 22/A, 24, and 33 of the CBRT Law No. 1211, the President has the authority to determine the monthly salaries and representation allowances that are paid to the CBRT governors and deputy governors, the monthly salaries and duty compensations that are paid to the CBRT Board as well as the Monetary Policy Committee members, and the salaries that are paid to Auditing Committee members. The gross amount paid to all these members of CBRT’s senior management amounted to TRY 7,903,396 in 2018.

By 31.12.2018Audit Executive Director Mehmet DüzgünBanking and Financial Institutions Executive Director Yavuz YeterBanknote Printing Plant Executive Director -Branch Coordinator Branch Coordinator Ayhan AydınBudget and Financial Reporting Executive Director İrfan YanarCommunications and Foreign Relations Executive Director Hakan AtasoyCorporate Risk Management Executive Director Mustafa Begün

Corporate Transformation Coordinator Corporate Transformation Coordinator Zafer Orhan

Human Resources Executive Director Dr. Sinan BinbirInformation Technologies Executive Director Ayşe Gül SayınIssue Executive Director Nurettin TüysüzIstanbul School of Central Banking Executive Director Ergün MeriçLegal Executive Director Sıtkı EroğluMarkets Executive Director Orhan KandarOperations Executive Director Dr. Ali Çufadar

Operations and Support Services Coordinator Operations and Support Services Coordinator Erol Göncü

Payment Systems Executive Director Mustafa Ömer OkayResearch and Monetary Policy Executive Director Dr. Pınar ÖzlüStatistics Executive Director Gülbin ŞahinbeyoğluStrategy and Corporate Governance Executive Director Dr. İbrahim Ethem GüneyStructural Economic Research Executive Director Dr. Cevriye AysoySupport Services Executive Director Mehmet Taşkın

1.1.6 Head Office Departments


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By 31.12.2018Adana Branch Director Emel AksoyAnkara Branch Director Dr. Yusuf Bora EnhoşAntalya Branch Director Sibel Nilüfer ErimBursa Branch Director Lütfi SoyluDenizli Branch Director Mustafa AlparDiyarbakır Branch Director Cihat YücelEdirne Branch Director Ayşen İşcanErzurum Branch Director Mustafa Okan ErginEskişehir Branch Director Nilüfer AydemirGaziantep Branch Director Oğuzhan Saçkanİskenderun Branch Director Mehmet Yıldırımİstanbul Branch Director İsmail Fehmi Ergüderİzmir Branch Director Halil Yeşilbursaİzmit Branch Director Aysel BeycarKayseri Branch Director Vasviye KahramanlarKonya Branch Director Nezihe Filiz BaysalMalatya Branch Director Emel AltayMersin Branch Director Sevim SağlamyaşarSamsun Branch Director Mehmet Ünal KekeviTrabzon Branch Director Özgür AydinVan Branch Director İzzettin Uluat

1.1.7 Branches


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1.1.8 Organization Chart

General Assembly

Board Monetary Policy Committee

Support Services

Communication and Foreign Relations

Strategy and Corporate

Management

Audit

Banknote Printing Plant

Corporate Risk Management

Operation and Support Services

Coordinator

Payment Systems

Branch Coordinator

Corporate Transformation

CoordinatorHuman Resources

Operations

Information Technologies

Issue

Structural Economic Research

İstanbul School of Central Banking

Banking and Financial Institutions

Research and Monetary Policy

Statistics

Budget and Financial Reporting

Legal

Markets

Governor

Auditing Committee

Executive Committee

Deputy Governor Deputy Governor Deputy Governor Deputy Governor


14

1.2 Staff

As required both by its strategic role regarding the Turkish economy and various tasks, the CBRT employs highly-qualified human resources comprised of a variety of professions. At the end of 2018, the number of staff positions held by the Bank amounted to 4,972, 76.53% of which was occupied by 3,805 employees.

In 2018, 45 people left the Bank’s employment due to retirement, resignation, dismissal, military service obligations and death while 120 people were hired. Thus, the number of people on the Bank’s payroll at the year-end has increased by 75 to 3,805 since 2017 (Chart 1.2.1).

General administrative services accounted for 79.40% of the Bank’s staffing. This is followed by technical services with 11.62%, health services with 0.39%, legal services with 0.34% and supporting services with 8.25%. Of the Bank’s staff, 20.18% is employed under contracts, while 79.19% hold permanent positions.

Of the CBRT’s staff, 56.16% is employed at the Bank’s Head Office and 43.84% works in branches. A breakdown of staff by age shows that the 31-40 age group makes up 46.02% of the staff (Chart 1.2.2). On the other hand, 80.24% hold undergraduate, graduate and post-graduate degrees.

Chart 1.2.3: Staff by Education Level

Chart 1.2.1: Number of Employees from 2008 to 2018

18-3

0

31-3

5

36-4

0

41-4

5

46-5

0

51-5

5

56-…

1,000

800

600

400

200

0

Chart 1.2.2: Staff by Age Groups

Head Office Branches

Source: CBRT

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Source: CBRT

Number of Employees

275

23836

8

351

373

52815

5

91

379

279

225

476

2344

DoctorateHigh School

MastersSecondary

BachelorsElementary

Associate

Source: CBRT

40.71%

17.79%

16.64%

2.76%

3.26%0.37%

18.48%

430

747

1,00

4

630

329

598

67

5,000

4,750

4,500

4,250

4,000

3,750

3,500

4,437 4,401 4,379 4,397

4,5844,659

4,753 4,746

4,564

3,730

3,805

15

Part 2 Activities and Major Developments Central Bank of the Republic of Turkey Annual Report 2018

2. ACTIVITIES AND MAJOR DEVELOPMENTS

Photograph: Haşim Kandilcioğlu – The Pinnacle

16


2.1 Price Stability, Financial Stability and Monetary Policy2.1.1 Overview

2018 was a year of major shocks of differing dimensions. Thanks also to the coordinated policies in the first nine months of 2018, the Gross Domestic Product (GDP) posted a year-on-year increase by 4.5%. The Turkish economy recorded a gradual balancing in the first half of 2018. In the third quarter of the year, the uncertainty led by the depreciated Turkish lira coupled with the tightening financial conditions affected the domestic demand and the credit supply. On the other hand, the contribution of net exports to growth registered a considerable increase. The balancing in demand composition led to a rapid improvement in the current account deficit. Other factors that contributed to the real improvement in the current account balance are the brisk course of foreign demand, the robust recovery in revenues from tourism and other services and the ability of exporters to have access to alternative markets, which were boosted also by the increased competitive advantage.

Consumer inflation posted an increase due to the depreciation in the Turkish lira and the resulting producer prices and the deterioration in the pricing behavior. Given the deteriorated pricing behavior coupled with the risks regarding the inflation prospects, a strong monetary tightening was delivered. Monetary measures and coordinated actions in economic policies allowed the pricing behavior to normalize in the last quarter, while the inflation outlook improved gradually. Thus, the partial appreciation in the Turkish lira and the developments in oil prices accompanied by subdued demand conditions in the last quarter drew inflation down to 20.30% at the end of the year. Meanwhile, the still-high inflation level coupled with the risks to price stability caused the tight monetary stance to be maintained.

In 2018, the simplification process was completed to bolster the efficiency of the monetary transmission mechanism in line with the monetary policy operational framework. In addition, actions were taken to enhance the efficient functioning of the markets considering the exchange rate volatility and unhealthy price formations and also to improve the transmission mechanism.

17


Monetary Policy Developments

The CBRT maintained the tight monetary policy stance of the first quarter of 2018 resolutely, and made a modest monetary tightening due to the persisting risks to the pricing behavior led by the high levels of inflation and inflation expectations in April, which were aggravated by the rise in import prices.

Given the risks carried by unhealthy price formations in the markets in May as well as the persisting rise in inflation expectations to the overall pricing behavior, an additional tightening was delivered. Besides this policy response, the CBRT completed the simplification process in the operational context of the monetary policy with a press release on 28 May 2018 to enhance the predictability of the monetary policy and to reinforce the transmission mechanism. Accordingly, the one-week repo auction rate became the CBRT’s policy rate. Moreover, it was decided that the CBRT’s overnight borrowing and lending rates would be set with a margin of +/- 150 basis points around the one-week repo auction rate (Chart 2.1.2.1). Thus, the overnight borrowing and lending rates formed a symmetrical corridor around the one-week repo auction rate. The whole of the CBRT funding started to be made through one-week repo auction rates in the new operational framework (Chart 2.1.2.2).

2.1.2 Developments in 2018

In the April-May period, in addition to the monetary policy decisions, the CBRT also took some measures for the markets. Accordingly, the upper limit for the FX facility ratio under the Reserve Option Mechanism (ROM) was reduced from 55% to 45%, and tranches were re-determined. This change provided the banks with FX liquidity, while conditions for TL liquidity grew tighter. Moreover, amounts of daily auctions for FX deposits against TL Deposits were raised. Through the press release of 25 May 2018, rediscount credits for export and foreign exchange earning services were enabled to be repaid in Turkish liras provided that they are paid at maturity. Alongside these measures on FX and TL liquidity management, the completion of the monetary tightening and the simplification process in May helped the volatility in financial markets to be alleviated.

Chart 2.1.2.2: CBRT Funding (2-Week Moving Average, TRY Billions)

Overnight LendingLate Liquidity Window

One-Week Repo (by quantity auction method)Net OMO

180

160

140

120

100

80

60

40

20

0

Chart 2.1.2.1: Short-term Rates (%)

Interest Rate Corridor

27

24

21

18

15

12

9

6

BIST Overnight Repo RatesOne-Week Repo Rate

Source: BIST, CBRT Source: CBRT

01.1

7

04.1

7

07.1

7

10.1

7

01.1

8

04.1

8

07.1

8

10.1

8

08.1

5

12.1

5

04.1

6

08.1

6

12.1

6

04.1

7

08.1

7

12.1

7

04.1

8

08.1

8

12.1

8

18


In the June MPC Meeting, emphasizing that elevated levels of inflation and inflation expectations continue to pose risks to the pricing behavior, the CBRT opted for a stronger monetary tightening. Accordingly, the one-week repo auction rate, which is the policy rate, was raised to 17.75% from 16.5%. In the July MPC Meeting, given the slowdown in domestic demand conditions and the necessity to monitor the lagged effects of monetary policy, the policy rate was kept unchanged. Meanwhile, it was considered that the tight monetary policy stance may be extended for a long time as the elevated levels of inflation and inflation expectations remained as a risk factor against the pricing behavior.

Against the rapid depreciation in the TL due to the excessive volatility in the exchange rate in early August, the CBRT took a series of measures to ensure smooth functioning of the markets focused on financial stability and supporting the TL and FX liquidity management. The upper limit was reduced for the foreign exchange facility under the ROM; the Turkish lira and foreign currency required reserve ratios were lowered and the markets were provided with liquidity; and flexibility was introduced to the banks’ conditions for collaterals. In this period of high volatility in financial markets, cost pressures and their secondary effects weighed on the inflation outlook. Accordingly, the CBRT opted for a strong monetary tightening in September to enhance price stability, and the one-week repo auction rate was raised to 24%. Owing to the measures and the strong monetary tightening decided on at the September MPC Meeting, the implied volatility for the Turkish lira receded in September and October in line with the decline in the risk premium and inflation compensation (Chart 2.1.2.3). Following the strong monetary tightening in September, a notable decline was seen in the long-term rates (Chart 2.1.2.4).

Chart 2.1.2.4: Yield Curve (%)

35

30

25

20

15

10

Chart 2.1.2.3: Exchange Rate Volatility Implied by Options (1–month Forward, %)

Source: Bloomberg* Emerging economies include Brazil, Indonesia, Philippines, South Africa, India, Colombia, Hungary, Malaysia, Mexico, Poland, Romania and Chile.

70

60

50

40

30

20

10

0

3 6 12 24 36 48 84 12060

Emerging Economies

Turkey

12 September 2018 13 September 2018 13 December 2018

01.1

7

05.1

7

09.1

7

01.1

8

05.1

8

09.1

8

Source: Bloomberg Maturity (Month)

19


Normalization in the monetary policies of central banks of advanced economies continued throughout 2018. Alongside this development in global monetary policies, protectionism in international trade proved stronger, leading to increased volatility in global financial markets and emerging economies saw higher risk premiums but depreciated currencies. Portfolio inflows to emerging economies followed a fluctuating course (Chart 2.1.2.5). Portfolio inflows to Turkey displayed a similar trend and portfolio flows performed more weakly than past years due to geopolitical developments and the deterioration in the inflation outlook.

Total credit growth settled in a slower path as of the first quarter of 2018 and the credit growth rate maintained its downtrend across 2018 (Chart 2.1.2.6). In addition to the base effect led by the acceleration in the credit growth rate driven by the accommodative macroprudential policies and public finance measures and incentives of 2017, supply and demand dynamics also pulled the annual credit growth rate down. Credit supply was affected by the rising domestic and external funding costs and banks’ tightening of their credit standards. Subdued economic activity, sluggish investment demand and the rise in loan rates stood out as factors to reduce credit demand.

Chart 2.1.2.5: Portfolio Inflows to Emerging Economies (4-Week Cumulative, USD Billions)

40

30

20

10

0

-10

-20

-30

-40

Stock Markets Bond Markets

Source: EPFR

Chart 2.1.2.6: Annual Credit Growth Rate (Adjusted for Exchange Rate Effect, % Change, Annual)

25

20

15

10

5

0

Commercial Total Consumer

Source: CBRT01.1

6

04.1

6

07.1

6

10.1

6

01.1

7

04.1

7

07.1

7

10.1

7

01.1

8

04.1

8

07.1

8

10.1

8 01.1

5

04.1

5

07.1

5

10.1

5

01.1

6

04.1

6

07.1

6

10.1

6

01.1

7

04.1

7

07.1

7

10.1

7

01.1

8

04.1

8

07.1

8

10.1

8

20


Inflation Developments

At the end of 2018, consumer inflation remained above the uncertainty band around the target at 20.30% (Chart 2.1.2.7). The sharp depreciation in the Turkish lira and the resulting deterioration in the pricing behavior stood out as the main drivers of the rise in inflation. Upon climbing to 33.64%, producer inflation kept cost-side pressures on consumer prices strong. Thus, consumer inflation posted a sharp increase since the second quarter and reached 25.24% in October. The uptick in inflation caused an increase in inflation expectations as well (Chart 2.1.2.8). In the last quarter, the deceleration in demand conditions, the decline in oil prices and the temporary tax adjustments in some durable goods all contributed to causing inflation to trended downwards and reach 20.30% at year-end.

Throughout 2018, especially core goods, which have relatively high and fast exchange rate pass-through, proved one of the drivers of the rise in inflation. Food prices stood out as another factor that stimulated the rise in inflation. Food inflation, which hit 13.79% at the end of 2017, lost pace in the first four months of 2018. However, in the following six months due chiefly to the cost pressures driven by exchange rate developments as well as unfavorable supply conditions in some products and the brisk course of tourism, food inflation saw high levels. In the last two months of 2018, food inflation decreased owing to the favorable prospects for fresh fruits and vegetables and the deceleration in processed food price increases and completed the year at 25.11%.

Annual services inflation recoded an increase due to the depreciation in the Turkish lira, more common past-indexation of inflation, stronger cost pressures in food and energy-related sectors and demand-side effects led by the brisk course of the tourism sector. Energy inflation, which followed a mild course in the first quarter compared to consumer inflation, gained momentum in the following months due to the sharp depreciation in the Turkish lira and the uptrend in oil prices. Adjustments in electricity and natural gas constitute a factor of pressure on energy inflation, while the sliding scale tariff put into use in fuel products in mid-May contained the price fluctuations.

Chart 2.1.2.7: Inflation and Targets (%)

30

25

20

15

10

5

0

TargetUncertainty Band

Consumer Price IndexB-Index Inflation

Chart 2.1.2.8: Inflation Expectations (%)

12-Month Ahead5-Year Ahead 10-Year Ahead

24-Month Ahead

20

18

16

14

12

10

8

6

4

Source: CBRT, TURKSTAT Source: CBRT

12.0

706

.08

12.0

806

.09

12.0

906

.10

12.1

006

.11

12.1

106

.12

12.1

206

.13

12.1

306

.14

12.1

406

.15

12.1

506

.16

12.1

606

.17

12.1

706

.18

12.1

8

12.0

706

.08

12.0

806

.09

12.0

906

.10

12.1

006

.11

12.1

106

.12

12.1

206

.13

12.1

306

.14

12.1

406

.15

12.1

506

.16

12.1

606

.17

12.1

706

.18

12.1

8

21


Supply – Demand Developments, External Balance and the Labor Market

In 2017, the GDP growth posted a considerable year-on-year increase and stood at 7.4%. In this period, the main driver of growth was domestic demand due to the measures and incentives put into force. Due especially to the stronger domestic demand and rising imports owing to the developments in the gold trade, net exports offered a limited contribution to growth.

Economic activity, following the robust course in the first quarter of 2018, settled into a rebalancing process in terms of pace and composition in the second quarter and converged to the underlying trend. In the third quarter of 2018, due also to the volatility in financial markets in August, the slowdown in economic activity proved more pronounced particularly on the back of the domestic demand. Boosted by the brisk recovery in tourism and the fall in the import demand, the contribution of net exports to growth increased and the adverse effects of the final domestic demand were partially contained (Chart 2.1.2.9). Against these developments, GDP recorded a year-on-year increase by 4.5% in the first nine months of 2018.

The current account balance recorded a notable improvement compared to the previous year (Chart 2.1.2.10). The rebalancing in foreign trade that started in the second half played an undeniable role in the narrowing of the current account deficit. Parallel to the favorable course of foreign demand, chiefly in the EU countries, exports remained on the increase across the year. Meanwhile, imports shrank in tandem with the economic activity, which has weakened since the second half of the year. Gold imports reverted to past averages, which contributed positively to the current account deficit. Tourism revenues maintain a steady increase, while transportation revenues, an item of services closely related to tourism, contributed to the improvement in the current account balance. On the other hand, the decline in oil prices in the last months of 2018 notwithstanding, the increase in energy prices across the year compared to 2017 had an adverse impact on the current account balance.

Chart 2.1.2.9: Gross Domestic Product and Final Domestic Demand (Contributions to Quarterly Growth, % Points)

8

6

4

2

0

-2

-41

2013 2014 2015 2016 2017 2018

3 34 2 22 4 41 13 3 13 1 12 24 4 2 3

Net ExportsGDP

Final Domestic DemandStock Change(*)

Chart 2.1.2.10: Current Account Balance (12-month Cumulative, USD Billions)

0

-10

-20

-30

-40

-50

-60

2014 2015 2016 2017 2018

CAB CAB (Excluding gold)

1 1 1 1 12 2 2 2 23 3 3 3 34 4 4 4 4

Source: CBRT, TURKSTAT

(*) Statistical deviation included.

Source: CBRT

22


Across 2018, the average year-on-year decline in the real effective exchange rate stood at 14.4% (Chart 2.1.2.11). In addition to the weakening domestic demand and credits, the real depreciation in the exchange supported the decline in imports and contributed considerably to the rebalancing in the current account deficit.

After receding across 2017, the unemployment rate trended upwards again as of the second quarter of 2018 and this trend in unemployment rates continued in the last quarter (Chart 2.1.2.12). This was led by the slowdown in economic activity coupled with the losses in employment in the non-farm sectors. Moreover, the rise in the labor participation rate also pushed unemployment rates upwards.

Source: CBRT

1 1 1 1 1

2014 2015 2016 2017 2018

2 2 2 2 23 3 3 3 34 4 4 4 4

110

100

90

80

70

60

Chart 2.1.2.12: Unemployment Rates and Labor Participation Rate (%, Seasonally-adjusted)

1

2013 2014 2015 2016 2017 2018

1 1 1 1 12 2 2 2 2 23 3 3 3 3 34 4 4 4 4 4

15

14

13

12

11

10

9

8

55

53

51

49

47

45

43

Unemployment RateNon-Farm Unemployment RateLabor Participation Rate (left axis)

Source: CBRT, TURKSTAT

Chart 2.1.2.11: Real Effective Exchange Rate (CPI-Based, 2003=100)

23


The funding need of the system decreased to TRY 100.53 billion as of end-2018 from TRY 137.52 billion as of end-2017.

After it was announced that the one-week repo rate would be the policy rate effective from 1 June 2018, the CBRT started providing its funding via one-week repo auctions and overnight market interest rates stood around (above/below) the policy rate.

A number of measures were introduced on 13 August 2018 to support financial stability and sustain the effective functioning of markets in the face of market shocks witnessed in August 2018. Accordingly, necessary steps were taken for financial stability by providing flexibility in collateral conditions and access to liquidity.

Technical work towards simplifying and making transparent the collateral conditions for CBRT transactions continued throughout 2018. Under the collateral management:

• In January 2018, collaterals that banks hold for Interbank Money Market (IMM) and Open Market Operations (OMO) were combined. As of February 2018, gold was accepted as collateral for Turkish lira transactions.

• In line with the measures introduced in August 2018, to provide flexibility in banks’ collateral management, a portion of or the entire amount of the winning bids in one-week repo auctions were allowed to be used in deposit transactions instead of repo transactions at the Central Bank Interbank Money Market with the same interest rate and maturity, upon the request of banks.

• In August 2018 again, the discount rate for all collaterals against Turkish lira transactions was set at 5% regardless of their maturities. In September, the minimum collateral rate for government domestic debt securities (GDDS) that banks are obliged to hold against their IMM borrowings was reduced to 10% from 30%.

• As of 30 November 2018, Foreign Exchange Markets transactions were included in the common collateral system, thereby bringing together all market transactions conducted at CBRT markets under a single collateral system.

The CBRT started transactions at the “Committed Transactions Market of Sukuk” at Borsa Istanbul A.Ş. (BIST) as of December.

Having set an overall Turkish lira portfolio target of TRY 16 billion for end-2018 and taking into account the TRY 5.77 billion worth of nominal instruments to be redeemed during the year, TRY 6.21 billion worth of nominal instruments were accepted for the OMO portfolio, which was TRY 14.96 billion at the beginning of 2018. Accordingly, the year end OMO portfolio amounted to TRY 15.40 billion.

2.2.1 Turkish Lira Liquidity Management

2.2 Operational Framework of Monetary Policy

24


2.2.2 Foreign Exchange Transactions

To ensure effective functioning of markets and taking into account the excessive volatility and unhealthy price formation in financial markets as well as the liquidity need of the financial sector, the CBRT introduced an array of measures that would boost the efficiency of TL and FX liquidity management.

In 2018, the CBRT did not conduct FX buying or selling transactions, neither directly nor via auctions.

FX deposit auctions against TL deposits, which commenced on 18 January 2017, continued while the auction amount was gradually reduced to USD 500 million from USD 1.5 billion.

The buying rate on collateral FX deposits for the USD was raised to 2% from 1.50% on 27 September 2018 and to 2.25% on 24 December 2018.

The CBRT continued the TL settled forward foreign exchange sale auctions that it introduced on 20 November 2017. In addition to these auctions, to support effective functioning of FX markets, the CBRT also started conducting TL-settled forward foreign exchange transactions at the Derivatives Market (VIOP) operating under the BIST on 31 August 2018.

On 1 November 2018, transactions were commenced at the Turkish Lira Currency Swap Market to increase the efficiency of banks’ Turkish lira and foreign exchange liquidity management. The upper limit for these transactions, which were conducted via the quotation method, was set at 10% of banks’ transaction limits at the Foreign Exchange Markets.

In addition to these instruments, banks have a total limit of around USD 50 billion that they can use to get FX deposits from the CBRT. Under this facility, a limited number of transactions were conducted in August. Also, the CBRT resumed its intermediary function at the Foreign Exchange Deposit Market as of 13 August 2018.

The remuneration rate on USD required reserves, reserve options and free deposits held at the CBRT was raised to 2% from 1.50% on 23 October 2018 in view of the benchmark interest rates in international markets.

The CBRT continued with the efforts to bring out domestic gold savings into the financial system. On 5 January 2018, in exchange for Turkish lira, the CBRT started accepting standard gold converted from wrought or scrap gold to be collected from residents and also standard gold domestically produced from gold that is extracted from ores. At the same time, transactions at the Gold against Foreign Exchange Market were launched, and banks were provided with the location swap facility in their gold transactions.

As part of the efforts to encourage the use of local currencies in foreign trade, for the financing of trade and investment activities between the Republic of Turkey and the People’s Republic of China, rediscount credits were extended within a total credit limit of CNY 2 billion via the acceptance of Chinese yuan bills for rediscount. Following the release of the “Circular on Rediscount Credits denominated in Chinese Yuan” in January 2017, the net amount of rediscount credits extended to banks against bills stood at CNY 26.3 million in 2018. Moreover, a swap agreement was signed with the Qatar Central Bank on 17 August 2018.

25


2.2.3 Reserve Requirements

The CBRT continues to use reserve requirements as both a monetary policy and macroprudential policy instrument.

The upper limit for the FX maintenance facility within the reserve options mechanism (ROM) was lowered to 45% from 55% in May and to 40% in August, thereby providing a total of USD 4.4 billion FX liquidity to the markets.

In August, Turkish lira reserve requirement ratios were reduced by 250 basis points for all maturity brackets while reserve requirement ratios for non-core FX liabilities were decreased by 400 basis points for maturities up to (and including) three years. In this way, TRY 10 billion, USD 6 billion and USD 3 billion equivalent of gold liquidity was injected into the markets. The maximum average maintenance facility for FX liabilities was raised to 8% from 4%. Under the ROM, it was allowed that in addition to US dollars, euros could also be used for the maintenance against Turkish lira liabilities, thus providing financial institutions with flexibility in their liquidity management.

The calculation method for the remuneration of Turkish lira required reserves was changed. Accordingly, it was decided that the remuneration rate on TL required reserves which was previously set at 400 basis points below the CBRT’s one-week repo rate would thereafter be determined at a fixed rate. The remuneration rate, which used to be 4% before this change, was announced to be 7% effective from 1 June 2018 and 13% as of 21 September 2018.

Funds raised from repo transactions at BIST, excluding those that banks conduct with the CBRT or among themselves, used to be subject to reserve requirement. However, via the change introduced in December to contribute to the deepening and effectiveness of financial markets, all funds raised from repo transactions at BIST were exempted from the reserve requirement scope.

Following these regulatory changes, weighted average reserve requirement ratios for Turkish lira and foreign exchange liabilities stood at 7.4% and 11.3% at end-2018, respectively (Charts 2.2.3.1 and 2.2.3.2).

Chart 2.2.3.1: TL Reserve Requirement Ratios (%)

Source: CBRT Source: CBRT Latest Data: 14.12.2018 Latest Data: 14.12.2018

15

12

9

6

3

0

The Range of RRRs Weighted Average RRR

Chart 2.2.3.2: FX Reserve Requirement Ratios (%)

28

24

20

16

12

8

4

0

The Range of RRRs Weighted Average RRR

01.1

6

04.1

6

08.1

6

11.1

6

03.1

7

06.1

7

10.1

7

01.1

8

05.1

8

08.1

8

12.1

8

01.1

6

04.1

6

08.1

6

11.1

6

03.1

7

06.1

7

10.1

7

01.1

8

05.1

8

08.1

8

12.1

8

26


The majority of banks and financing companies continue to actively use the ROM facility. As of end-2018, the rate of utilization was 92.5% for the FX facility, 92.1% for the gold facility, and 48.1% for the scrap gold facility (Charts 2.2.3.3 and 2.2.3.4). On the other hand, banks in Turkey can also maintain standard gold for their precious metal deposit accounts and this facility’s utilization rate was 77.9% as of the same maintenance period.

By the end of 2018, USD 8.6 billion worth of FX and USD 8.7 billion worth of gold were maintained for Turkish lira liabilities within the ROM (Chart 2.2.3.5). For FX liabilities, USD 34.8 billion worth of FX and USD 0.7 billion worth of gold were maintained (Chart 2.2.3.6).

Source: CBRT Source: CBRTLatest Data: 28.12.2018 Latest Data: 28.12.2018

Chart 2.2.3.3: Utilization of ROM’s FX Facility (%)

60

54

48

42

36

30

24

FX Upper Limit of FX Facility

Chart 2.2.3.4: Utilization of ROM’s Gold Facility (%)

30

24

18

12

6

0

5

4

3

2

1

0

Scrap Gold (Right Axis)

Upper Limit of Facility

Gold (Left Axis)

Chart 2.2.3.5: Amount of FX and Gold within ROM (USD Billions)

Chart 2.2.3.6: Amount of FX Required Reserves (USD Billions)

Source: CBRTLatest Data: 28.12.2018

30

24

18

12

6

0

30

24

18

12

6

0

Gold (Left Axis)FX

Source: CBRTLatest Data: 28.12.2018

48

42

36

30

24

18

12

6

0

Gold (Left Axis)FX

01.1

6

04.1

6

08.1

6

12.1

6

04.1

7

08.1

7

12.1

7

04.1

8

08.1

8

12.1

8

01.1

6

03.1

6

06.1

6

09.1

6

12.1

6

03.1

7

06.1

7

09.1

7

12.1

7

03.1

8

06.1

8

09.1

8

12.1

8

2.0

1.6

1.2

0.8

0.4

0.0

01.1

6

04.1

6

08.1

6

12.1

6

04.1

7

08.1

7

12.1

7

04.1

8

08.1

8

12.1

8

01.1

6

03.1

6

06.1

6

09.1

6

12.1

6

03.1

7

06.1

7

09.1

7

12.1

7

03.1

8

06.1

8

09.1

8

12.1

8

27


In line with the efforts both to reduce Turkey’s current account deficit and to reinforce the CBRT’s reserves by supporting exports, pursuant to Article 45 of the Central Bank Law, rediscount credits are extended to exporters and firms that engage in foreign FX earning services and activities. These loans are extended in Turkish liras through the Export Credit Bank of Turkey (Turk Eximbank) as well as through commercial banks, which accept exporters’ FX denominated bills for rediscount. The loans normally have up to 240 day maturities (360 days for exports of high tech products and exports to new markets) and are repaid to the CBRT in foreign currency.

The total limit available for rediscount credits is USD 20 billion, USD 17 billion of which is assigned to Turk Eximbank and the remaining USD 3 billion to commercial banks. Credit limits by types of companies are up to USD 400 million for foreign trade capital companies and up to USD 350 million for other companies. The entire limit can be used in applications for credits with a maturity of up to 120 days whereas maximum 60% of the limit can be used in credit applications with a maturity of 121 to 360 days. In 2018, several regulatory changes were introduced in rediscount credits:

The change in April stipulated that:

• To be applicable only in case of the detection of state-forced bans, a war or a blockade in countries with which Turkey engages in commitments for export or FX-earning services, the current 24-month period for the conclusion of commitments financed by rediscount credits could be extended for an additional period of up to 12 months.

2.2.4 Rediscount Credits

With the facilitation of maintaining required reserves in euros in addition to US dollars under the ROM, the share of the USD in total required reserves maintained for Turkish lira liabilities dropped to 6.5% as of end-2018 from 40.5% while that of the euro stood at 30.5% (Charts 2.2.3.7 and 2.2.3.8).

Chart 2.2.3.7: Composition of Required Reserves Maintained for Turkish Lira Liabilities (before the euro maintenance facility)

Chart 2.2.3.8: Composition of Required Reserves Maintained for Turkish Lira Liabilities (after the euro maintenance facility)

30.6% (TRY 36.1 billion)


28.8% (TRY 34 billion)

USD Gold TRY USD EUR Gold TRY



30% (TRY 26.4 billion)

33% (TRY 28.9 billion)

Source: CBRT Source: CBRTLatest Data: 13.07.2018 Latest Data: 14.12.2018

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Monthly maximum contractual and overdue interest rates to be applied on credit card transactions are announced for quarterly periods by the CBRT. In the first half of 2018, monthly maximum contractual interest rates for credit card borrowings were left unchanged at 1.84% for Turkish lira and 1.47% for foreign currency transactions. Likewise, monthly maximum overdue interest rates were also kept at 2.34% for Turkish lira and 1.97% for foreign currency transactions. However, in the third quarter of 2018, the monthly maximum contractual interest rate was raised to 2.02% for Turkish lira and 1.62% for foreign currency transactions while the monthly maximum overdue interest rate was increased to 2.52% for Turkish lira and 2.12% for foreign currency transactions. With further increases in the final quarter of the year, the monthly maximum contractual interest rate stood at 2.25% for Turkish lira and 1.80% for foreign currency transactions whereas the monthly maximum overdue interest rate reached 2.75% for Turkish lira and 2.30% for foreign currency transactions.

2.2.5 Maximum Interest Rates for Credit Cards

The change in May stipulated that:

• The repayments of rediscount credits for export and FX-earning services that were extended before 25 May 2018, which would be due by 31 July 2018 (included), could be made in Turkish liras at an exchange rate of 4.20 for the USD, 4.90 for the euro, and 5.60 for the GBP, provided that they were paid at maturity. In case the exchange rate on the date of credit extension was higher than these rates, the exchange rate on the date of credit extension would be applicable in credit repayment. Introduced to support financial stability in view of market developments and the high volatility in exchange rates, this change was intended to provide convenience to rediscount credit borrowers in the repayment of their foreign currency debt. Under this facility, 2,474 rediscount credits with a worth of approximately USD 4.9 billion that were extended to 1,120 firms were repaid in Turkish lira.

With the changes in July:• The operational framework of rediscount credits was fundamentally altered. The new framework was intended to

enable faster and more effective conclusion of transactions and alleviate the operational burden on all stakeholders. Accordingly, via a new state-of-the-art information technology infrastructure, intermediary banks started sending all kinds of credit-related data and documents to the CBRT in an electronic environment.

• This new mechanism removed the obligation to send rediscount credit data to the CBRT via an official letter and to submit all documents physically. Instead, intermediary banks were integrated to the CBRT’s Rediscount Credits Management System infrastructure, and rediscount credits were also included in the CBRT’s Electronic Data Transfer System.

The change in September stipulated that:• The maximum maturity of Chinese yuan rediscount credits could be extended to 365 days.

Through the changes in December:• Transactions regarding the repayment of rediscount credits and conclusion of commitments were included in the

scope of automation. Besides, free zone firms were also allowed to receive rediscount credits for post-shipment export and FX-earning services.

As part of the efforts to encourage the use of local currencies in the conduct of foreign trade, for the financing of trade and investments between the Republic of Turkey and the People’s Republic of China in local currencies, ten firms were provided with CNY 27 million worth of rediscount credits against bills for 11 projects.

The total amount of rediscount credits rose to USD 22.9 billion in 2018 from USD 20.4 billion in 2017. By the end of 2018, the value of outstanding credits was USD 15.5 billion.

Rediscount credits contributed by USD 15 billion to CBRT’s FX reserves in 2018.

29


The global economic policy uncertainty was on the uptrend throughout 2018. The risk appetite for emerging market economies (EMEs) decreased due to increased total indebtedness, persistent tightening in monetary policies of advanced economies, appreciation of the US dollar, protectionist trade measures and policy uncertainties in some advanced economies, in Italy and the UK in particular. Consequently, EMEs witnessed net portfolio outflows in the period following the first quarter of 2018. While the global economic outlook remained positive, divergences among countries became pronounced and downside risks to economic activity increased. The uptrend in commodity prices observed since 2016 due to global demand and protectionist trade measures was replaced by a rather fluctuating trend. Country-specific risks, geopolitical developments and the tightening in global liquidity conditions constituted the risk factors affecting the economic growth outlook in EMEs.

Due to macroprudential measures introduced in recent years, household financial assets have been growing faster than household financial liabilities. As of January 2018, the growth in assets has accelerated whereas the growth in liabilities has lost pace. Accordingly, the household financial leverage ratio (liabilities/assets) decreased at an accelerated rate and stood below 45%. The increase in financial assets was primarily driven by Turkish lira and foreign currency (FX) deposits while the increase in individual credit card balances in addition to housing and personal loans affected the liabilities. By September 2018, Turkey’s household indebtedness (debt/GDP) was 16.8%, standing significantly below the average of selected EMEs at approximately 30%.

The upward trend in the financial leverage of corporate sector companies continued and the ratio of corporate loans to GDP remained below the averages of the G20, EMEs and the world in 2018. The corporate sector’s Turkish lira credit indebtedness, which increased due to measures and incentives introduced in 2017, started to rebalance in 2018. The corporate sector’s use of FX credits decreased due to the volatility in exchange rates, increased awareness about exchange rate risk management, harmonized measures, and the rebalancing in economic activity.

The credit growth that was supported by incentives such as the Credit Guarantee Fund (CGF) facility in the first half of 2018 decelerated in the second half of the year due to the rebalancing in economic activity, tightening in financial conditions and the strengthened liquidity preference of the financial sector. With the transition to the Turkish Financial Reporting Standard (TFRS 9) accounting system in early 2018, banks started using in their credit classifications subjective internal assessment models that include expectations regarding the macroeconomic outlook and international developments. Accordingly, the ratio of closely monitored loans increased in line with the modest deterioration in asset quality. Despite the decelerating economic activity, the exchange rate volatility and the TFRS 9-driven slight increase in the Non-Performing Loans (NPLs) ratio, the positive outlook in the banking sector’s asset quality was maintained.

Liquidity coverage ratios (LCR) showing the short-term liquidity positions of the banking sector are well above the legal ratios for total and FX liquidity. Recently, there has been an improvement in the loan-to-deposit ratio (L/D), one of the indicators used to monitor the long-term liquidity risk outlook of the sector. The L/D ratio somewhat decreased as the deceleration in loan growth rates was stronger than the decline in deposit growth rates. The share of deposits, which are among the core liabilities constituting banks’ main funding source, in non-equity liabilities is 55%. Because deposits are stable funds, the banking sector is hedged against the risk of short-term funding. The share of external debts in foreign funding sources is limited.

2.3.1 Financial Stability Developments

2.3 Financial Stability Developments and Activities

30


Banks’ use of external funding sources increased in the first half of 2018 but started decreasing in the second half of the year. This decrease was driven by reduced investment appetite for emerging economies, global supply conditions and the impact of FX loan demand, which declined as of the second half of 2018 due to the deceleration in corporate sector investments as well as measures and increased awareness regarding exchange rate risk management, on the need for foreign sources.

Despite the tightening in global markets, banks were successful in managing the fall in external debt rollover ratio via the use of available liquidity buffers. Banks’ liquidity buffers that they can use in the face of external financial shocks and that are composed of cash, free external accounts, unencumbered Eurobonds, ROM reserves and FX required reserves are sufficient to cover the external debt due within one year. Moreover, banks’ USD 35 billion worth of net currency swap position and the FX deposit facility offered by the CBRT with a limit of USD 50 billion also provide additional buffers against external shocks. On the other hand, the long-term nature of external debt and the wide range of creditors reduce the refinancing risk.

The positive outlook in the sector’s profitability and equity structure persists. The capital adequacy ratio of the banking sector is significantly above the minimum/target ratios stipulated by the Basel Committee (8%) and the Banking Regulation and Supervision Agency (BRSA) (12%). By November 2018, this ratio was 18.2% and it is also backed by the profitability performance of the sector. The return on equity and the return on assets are 14% and 1.5%, respectively. The flat course of the sector’s net profit and the issuances of subordinated debts by some banks in the second half of 2018 had positive effects on regulatory capitals.

31


To contribute to financial stability, the CBRT continues to work in cooperation and coordination with the authorities concerned.

In January, a comprehensive amendment was made in the Decree No. 32 on the Protection of the Value of the Turkish Currency concerning the use of FX loans. The CBRT took part in all stages of this amendment process. The Circular on Capital Movements – the secondary legislation of the amendment – was revised in line with the contribution and views of internal and external stakeholders, and it was put into effect on 2 May 2018. The revised circular arranges the details of implementations towards the alignment of FX credit borrowings of small-sized enterprises with their FX revenues.

One of the key financial stability issues is the FX indebtedness of the corporate sector. The CBRT is actively engaged in the Systemic Risk Data Monitoring Project for which the foundations were laid at Financial Stability and Development Committee meetings. The data monitoring system launched at the CBRT to manage the firm-based exchange rate risk is important in terms of reinforcing the infrastructure for the oversight of firms’ FX risk in the upcoming period.

In 2018, the CBRT continued to share its views and assessments concerning financial stability via its biannual Financial Stability Report. In addition, the CBRT also continued to contribute to the economics literature by means of working papers, research notes in economics, and articles published in international journals. Besides, assessments on financial stability issues are also shared via articles posted on the CBRT Blog.

The CBRT continues to support international publications and meetings in cooperation with other agencies and organizations. The CBRT’s bilateral relations with international agencies working in the field of financial stability such as the International Monetary Fund (IMF) and the Bank for International Settlements (BIS) continued in 2018 as well. These relations take the form of exchanging views on issues dealt with in reports that the organizations intend to publish. In addition to face-to-face meetings, the CBRT also submits written opinions about reports published by organizations. The CBRT also undertakes work to establish cooperation with related authorities.

In 2018, the CBRT continued to engage in efforts aimed at enhancing its representational influence and effectiveness as well as contributing to financial stability on international financial platforms. The Bank participated at the highest level in the Plenary and Standing Committee meetings of the Financial Stability Board (FSB), which aims to establish financial stability through its duties to coordinate the work of national financial authorities and international standard setting bodies, and to develop and enforce strong regulatory, supervisory and other financial sector policies.

The Basel Committee on Banking Supervision (BCBS) is charged with setting general standards applicable to bank supervision, serving as a consultant for member nations, and formulating new international standards especially in such areas as capital and liquidity. The CBRT attended the BCBS meetings at senior level, and participated in and contributed to various BCBS working sub-group meetings at the technical level.

The CBRT also continued to take part in the regulatory activities of the Islamic Financial Services Board (IFSB), whose fundamental duties are to develop and improve interest free financial services so as to be compatible with developments in the international financial system.

Work carried out with these institutions focused on the development and implementation of financial regulations that would contribute to achieving financial stability. The CBRT conducted this work under an active cooperation with the related authorities of Turkey.

The CBRT and Qatar Central Bank, acting in their capacity as the co-chairs of the FSB Middle East and North Africa Regional Consultative Group (RCG), organized two meetings hosted by the CBRT on 5 May 2018 and 5 November 2018 in Istanbul. The CBRT contributed to the drawing up of meeting agendas and contents.

Accordingly, the issues addressed at the meetings consisted of the FSB’s ongoing activities, regional issues pertaining to fragilities and financial stability, infrastructure investments and their financing in emerging economies, impacts of expanding crypto asset markets on financial stability, financing of Small and Medium-Sized Enterprises (SMEs) and effects of Basel regulations, use of financial technologies in the region, and issues concerning the regulation on the Net Stable Funding Ratio.

2.3.2 Financial Stability Activities

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In 2018, the total value of transactions conducted through the Interbank Turkish Lira Transfer System and through its Electronic Securities Transfer and Settlement System (ESTS) was TRY 71 trillion. The average daily transaction volume was TRY 282.7 billion. Approximately 2.5 million transactions were conducted through the system, which corresponds to an average of 10,000 messages a day. The volume of settlements conducted through the Interbank Turkish Lira Transfer System increased in 2018 by approximately 12.7% over the previous year (Chart 2.4.1.1).

The total volume of all transactions conducted via the CBRT Retail Payment System in 2018 amounted to TRY 17 trillion, while the average daily transaction volume was TRY 67.8 billion. The total number of transactions conducted in the system was 585 million and the daily average number of messages processed was 2.3 million. The greatest number of transactions occurred on 17 December 2018 when 5.8 million messages were handled. The number of settlements carried out through the Retail Payment System was approximately 24.5% higher in 2018 than in 2017 (Chart 2.4.1.2).

Meanwhile, approximately 173 thousand messages were processed in the auction system.

With the inclusion of the Bank of China Turkey Inc. in the CBRT Payments Systems on 11 April 2018, the number of participants in the payment systems stood at 52 by the end of 2018.

2.4.1 CBRT Payment Systems Statistics

2.4 Financial Infrastructure

Chart 2.4.1.1: Total Value of Payments Processed through CBRT Payment Systems (TRY Trillions)

Chart 2.4.1.2: Total Number of Payment Messages Processed through CBRT Payment Systems (Million Messages)

Interbank Payment System Retail Payment SystemTotal

TRY

Trilli

on

Milli

on M

essa

ges

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

100

90

80

7060

5040

3020

10

0

24 25

3933

35

4349

40 43

53 56

77

88

7163

45

17141110

Daily Averages 2018: TRY 350.5 billion(*)

2017: TRY 303.0 billion 2016: TRY 226.3 billion

98

Interbank Payment System Retail Payment SystemTotal

(*) TRY 282.7 billion from Interbank Payment System and TRY 67.8 billion from Retail Payment System.

Source: CBRT

(*) 5,792,464 messages from Retail Payment System and 10,789 messages from Interbank Payment System.(**) 2,331,867 messages from Retail Payment System and 10,130 messages from Interbank Payment System.

Source: CBRT

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

700

600

500

400

300

200

100

0

129 142 167 230

233267

2.9315 2.9 2.5 2.5 2.5

269 315318 375

377 470473

585588

182

197

Daily Transaction Record (17 December 2018) 5,803,253 messages(*)

Daily Averages 2018: 2,341,997 messages(**)

2017: 1,868,731 messages 2016: 1,515,258 messages

33


Under Article 8 (“Payment on account”) of the Check Law No. 5941, check clearing transactions in Turkey are performed by Istanbul Clearing, Settlement and Custody Bank Inc. (Takasbank) via the “Check Clearing System,” pursuant to the Regulation on Check Clearing Transactions prepared by the CBRT and published in the Official Gazette No. 30446 dated 9 June 2018.

On the other hand, as per the Law No. 6493 on Payment and Securities Settlement Systems, Payment Services and Electronic Money Institutions (Law No. 6493), the CBRT monitors the work on the uninterrupted and safe conduct of check clearing transactions.

In 2018, the total value of approximately 15.2 million checks cleared through the check clearing system was TRY 588.4 billion (Chart 2.4.2.1).

2.4.2 Check Clearing Transactions

The “Communiqué Concerning International Bank Account Numbers” issued by the CBRT in 2008 stipulates that banks shall generate an International Bank Account Number (IBAN) for each of their customers subject to the rules set out in the communiqué and that their customers shall use these numbers when transferring money. This communiqué rapidly increased public awareness and use of the IBAN system in Turkey. By year end 2018, IBAN usage ratio for the senders was 99.5% whereas recipients’ usage ratio was 94.3% in money transfers through the Electronic Fund Transfer (EFT) system.

2.4.3 Use of International Bank Account Number in Turkey

Chart 2.4.2.1: Checks Cleared by the Check Clearing System (Annual, TRY Billions)

Million checks Value (Right Axis)

Source: Takasbank

700

600

500

400

300

200

100

0

30

25

20

15

10

5

0

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

34


Approval for the Operation of Takasbank Organized Wholesale Natural Gas Sale Market Cash Clearing and Collateral Services

With its decision dated 8 November 2018, the CBRT Board approved the provision of cash clearing and collateral services by Takasbank at the Organized Wholesale Natural Gas Sale Market as an additional activity of Takasbank besides its system operation activities. This decision was published in the Official Gazette No. 30595 dated 14 November 2018.

The Organized Wholesale Natural Gas Sale Market operated by the Energy Exchange Istanbul (EXIST) and the continuous trade platform developed for this market have been established to make Turkey the regional natural gas trade center. Natural gas is priced under market conditions at this market and a reference price is set. This market also enables natural gas sale-purchase transactions in addition to market participants’ bilateral agreements. Takasbank provides cash clearing, collateral, default, and assignment services at this market.

Approval for the Operation of Takasbank Gold Transfer System

The application of Takasbank for the approval of the operation of the Gold Transfer System was ratified by the decision of the CBRT Board dated 12 July 2018 as an additional activity of Takasbank besides its system operation activities. This decision was published in the Official Gazette No. 30483 dated 19 July 2018.

The Gold Transfer System established and operated by Takasbank enables instant electronic transfer of gold balances among banks.

Approval for the Operation of Takasbank to Provide Central Counterparty Services in the Borsa Istanbul Swap Market

Takasbank applied for the approval of its operation to provide central counterparty services as an additional activity that it can perform besides its system operation activities. When providing these services, Takasbank acts as a seller against a buyer and as a buyer against a seller at the BIST Swap Market established to ensure that swap transactions, which are conducted mostly at over-the-counter markets, can be offered under the guarantee of an organized market. Takasbank’s application was approved by the decision of the CBRT Board dated 29 November 2018. The decision was published in the Official Gazette No. 30619 dated 8 December 2018.

2.4.5 Approvals for Additional Activities of Payment and Securities Settlement Systems

On 18 May 2018, Takasbank applied to the CBRT for the approval of the establishment and operation of the Check Clearing System that would enable clearing of the checks among bank branches, in addition to its main operator function of securities settlement systems. The official authorization for the establishment and operation of this system was granted by the decision of the CBRT Board dated 20 June 2018, which was published in the Official Gazette No. 30463 dated 29 June 2018.

As per the Check Law No. 5941 dated 20 December 2009, the legal entity status of the Interbank Check Clearing House Center (ICH) that was operating the Check Clearing System terminated on 2 July 2018 as the Regulation on Interbank Check Clearing House Center published in the Official Gazette No. 18879 dated 25 September 1985, which furnished the ICH with a legal entity status, was repealed by the Regulation on Check Clearing Transactions that was published in the Official Gazette No. 30446 dated 9 June 2018 and took effect on 2 July 2018. The CBRT’s announcement regarding this change was published in the Official Gazette No. 30470 dated 6 July 2018. Accordingly, check clearing transactions in Turkey that used to be conducted by the ICH before 2 July 2018 via the Check Clearing System started to be carried out by Takasbank thereafter.

2.4.4 Takasbank Check Clearing System

35


In accordance with the Law No. 6493 and secondary legislations issued pursuant to this law, the CBRT has the authority and responsibility to oversee the payment and securities settlement systems to ensure uninterrupted operation of these systems.

Based on its authorities and responsibilities given by relevant legislations, the CBRT oversees payment and securities settlement systems in a process that begins with the licensing of organizations that set up and manage these systems and continues with the conduct of their operations. As part of these progressive oversight activities, the CBRT monitors the system operators by checking information and documents collected, conducts on site visits when it deems necessary in order to perform more detailed examinations of transactions and documentation. Based on the findings of its oversight activities, the CBRT prepares detailed reports concerning system operators’ compliance with the CBRT regulations and international standards.

Accordingly, in the first half of 2018, the CBRT carried out detailed oversight activities regarding the operations of CBRT Payment Systems and the Mastercard Payment Transaction Services Turkey Information Services Inc. (MPTS), made on-site visits to MPTS, and prepared oversight reports after examining the compliance of these operators’ systems with the provisions of the secondary legislations of Law No. 6493 and with the Principles for Financial Market Infrastructures published by the BIS Committee on Payments and Market Infrastructures (CPMI) and by the International Organization of Securities Commissions (IOSCO). Additionally, in the second half of 2018, the CBRT prepared oversight follow-up reports on the MPTS and Garanti Payment Systems Inc., in which it assessed the progress made concerning the findings and recommendations cited in the oversight reports on these operators in 2017 and 2018, and re-evaluated the compliance of these systems with the national legislation and international standards.

On the other hand, close monitoring by the CBRT of structural changes to be made in the systems, rules, procedures and applications of system operators also constitutes an important part of oversight activities. In this scope, as per Article 7, paragraph 4 of the Regulation on Operations of Payment and Securities Settlement Systems, the application of Takasbank for the approval of the structural change, which facilitates acceptance of letters of guarantee as collateral and guarantee fund contribution until 31 December 2018 for Borsa Istanbul Equity Market transactions performed via the Equity Market Clearing System, was ratified by the decision of the CBRT Executive Committee dated 18 May 2018.

Pursuant to Article 9, paragraph 7 of the same Regulation, structural changes in procedures regarding the Debt Securities Market Clearing System were approved by the decision of the CBRT Executive Committee dated 27 March 2018. These changes were introduced as a result of Takasbank’s new role as the Central Counterparty at Borsa Istanbul Debt Securities Market and the change and transfer of the Debt Securities Market Clearing System applications and technological infrastructure to the BISTECH platform.

2.4.6 Developments Regarding the Oversight of Payment and Securities Settlement Systems

36


By the end of 2018, the value of banknotes in circulation increased by 0.6% year-on-year and reached TRY 132.3 billion. Meanwhile, the number of banknotes in circulation decreased by 0.3% and stood at 1,914 million. Over the last five years, the end-year value of banknotes in circulation in Turkey has increased by an average 12.3% and the number of banknotes in circulation by 7.9% on a yearly basis (Chart 2.5.1).

Excluding withdrawn banknotes that are still in the 10 year redemption period, the number of banknotes in circulation was 1,893.5 million by 31 December 2018. As of end 2018, the denominations with the highest number of banknotes in circulation were 100 TL and 50 TL banknotes (Chart 2.5.2). The share of these two denominations made up 53.6% of all the notes in circulation. As measured by value on the other hand, the two denominations commanding the biggest shares of the total were 100 TL (53.7%) and 200 TL (28.3%) banknotes (Table 2.5.1).

Chart 2.5.1: Value and Number of Banknotes in Circulation

Chart 2.5.2: Number of Banknotes in Circulation by Denomination (Million Banknotes)

Table 2.5.1: Banknotes in Circulation by 31.12.2018

Denomination Total Value % of Total Value Total Number % of Total Number200 TL 37,451,975,900.0 28.32 187,259,879.5 9.78100 TL 70,958,036,450.0 53.65 709,580,364.5 37.0750 TL 15,776,598,275.0 11.93 315,531,965.5 16.4820 TL 4,537,611,340.0 3.43 226,880,567.0 11.8510 TL 2,180,255,820.0 1.65 218,025,582.0 11.395 TL 1,181,120,955.0 0.89 236,224,191.0 12.34SUBTOTAL 132,085,598,740.0 99.87 1,893,502,549.5 98.91Other(*) 176,123,644.5 0.13 20,763,482.5 1.09TOTAL 132,261,722,384.5 100.00 1,914,266,032.0 100.00

Source: CBRT(*) Banknotes which have been removed from circulation but whose 10 year redemption period has not yet expired

800

700

600

500

400

300

200

100

0

140

120

100

80

60

40

20

0

Number of Banknotes in Circulation (Million) (Right Axis) 200 TL 100 TL 50 TL 20 TL 10 TL 5 TLValue of Banknotes in Circulation (TRY Billions)

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2010

2011

2012

2013

2014

2015

2016

2017

2018

Source: CBRT Source: CBRT

2.5 Banknotes in Circulation

2,000

1,800

1,600

1,400

1,200

1,000

800

37


The “Annual Average Value of Banknotes in Circulation/GDP” ratio, which was 3.5% in 2006, has increased over the years and is estimated to have closed the year at 3.7% in 2018 (Chart 2.5.3).

BY THE END OF 2018, THE VALUE OF BANKNOTES IN CIRCULATION INCREASED BY 0.6% YEAR-ON-YEAR AND REACHED TRY 132.3 BILLION.

In 2018, via its 21 branches, 16 banknote depots and 2 cash centers, the CBRT conducted a total of TRY 993.7 billion worth of transactions, of which TRY 496.5 billion were collections and TRY 497.2 billion were payments.

The CBRT has banknote depots in 16 of Turkey’s provinces where it does not have branches. These facilities, which serve to improve the physical quality of banknotes in circulation and also meet the markets’ need for different denominations of banknotes in a timely fashion, made TRY 66.7 billion worth of collections and carried out TRY 67.1 billion worth of payments in 2018. In other words, 13.5% of the CBRT’s total banknote handling operations was performed via these depots last year.

In 2018, the CBRT’s Cash Center on the European Side of Istanbul, which is a subdivision of the Istanbul Branch, carried out 39.1% of all transactions handled in Istanbul province. On a nationwide basis, the shares of some branches in the total transaction volume were as follows: Cash Center on the European Side of Istanbul 11.7%, Ankara Branch 11.6%, Istanbul Karaköy Branch 9.5%, Anatolian Side Cash Center of Istanbul 8.7% and İzmir Branch 7.7%.

Additionally, the eight Decentralized Cash Management (abbreviated as MONY in Turkish) depots, which started operating under the Istanbul branch in the second half of 2018, handled 4.3% of all transactions conducted in Istanbul province.

Chart 2.5.3: Annual Average Value of Banknotes in Circulation/GDP (%)

6

5

4

3

2

1

0

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

(*)

Source: CBRT

(*) 2018 GDP is calculated with annualized 9 month data (2009=100).

3.53.3 3.3

4.04.5 4.2 4.3

4.8 4.95.3

4.74.2

3.7

38


The CBRT holds foreign currency reserves in support of a range of objectives that include assisting the government in meeting its FX denominated domestic and foreign debt obligations, maintaining adequate FX liquidity against external shocks, supporting monetary and exchange rate policies, and enhancing market confidence. The CBRT’s reserve management implementations are governed by the CBRT Law No. 1211. The CBRT Board regulations and decisions regarding FX and gold reserve management issued pursuant to the same law also provide the framework for the reserve management activities.

The CBRT’s institutional decision making framework for reserve management has a three tier hierarchical structure. Firstly, as the Bank’s top decision making authority, the Board approves the “Guidelines for Foreign Exchange Reserve Management” (the Guidelines) prepared in line with the three priorities cited in the CBRT Law as safety, liquidity and return. With the Guidelines, the Board sets the general investment criteria for reserve management and authorizes the Executive Committee and Governor to make decisions about implementation. Decisions made by the Executive Committee or the Governor, which are based on proposals made by the Foreign Exchange Risk Management and Investment Committee (FXRIC) in accordance with the Guidelines approved by the Board, constitute the second tier of the institutional decision making process. At this point, a benchmark portfolio that reflects the CBRT’s general risk tolerance and investment strategy is determined and approved. At the end of each year, the FXRIC proposes a benchmark portfolio to be implemented in the following year. This portfolio, which sets out the strategic asset allocation preferences of the CBRT, is submitted to the Executive Committee and becomes effective upon its approval. The third and final tier of the institutional decision making process is the implementation of reserve management practices within the preferences and limits specified by the Guidelines and the benchmark portfolio. Reserve management activities are carried out within an organizational structure based on the segregation of duties principle. Accordingly, the reserve management activities are carried out by the Reserve Management Division, while related risk management activities are carried out by the Financial Risk Management Division.

Subject to the objectives and limits set by the Guidelines and the benchmark portfolio, reserve management operations are conducted through FX buying-selling transactions in international markets, forward transactions, other derivative instruments, FX deposit transactions, securities buying-selling transactions, repo and reverse repo transactions and securities lending transactions.

Efforts to control risks that the CBRT may be exposed to during the conduct of its reserve management operations begin with the strategic asset allocation process, as early as when defining the benchmark portfolio. Once the currencies, instruments and maturities to be employed in reserve management have been set, the expected return and the financial risks involved are to a large extent identified. Reflecting the CBRT’s preferences for strategic asset allocation, the benchmark portfolio consists of target currency composition, target maturities and limits of deviation from these targets, maximum permissible transaction limits, eligible transaction types, and the investment universe representing countries and instruments to invest in. When determining the benchmark portfolio, the objective is to generate returns while observing constraints such as protecting capital and ensuring the availability of liquidity and the ultimate aim is the prudent management of the reserves, the country’s national wealth. Having determined the overall permissible risk level within the framework of the CBRT’s risk tolerance by means of the benchmark portfolio, risks are measured, monitored, and reported regularly.

2.6 Foreign Exchange Reserve and Risk Management

39


The CBRT’s gold holdings were 488.9 tons by 31 December 2018, accounting for 21.6% of total reserves (Chart 2.6.1). CBRT gold reserves conform to international standards and are managed as per the Guidelines issued by the CBRT Board in accordance with the provisions and conditions stipulated in the Central Bank Law No.1211. Pursuant to these Guidelines, the Bank may engage in outright trading of gold and conduct gold deposit, gold swap, location swap and physical gold transfer transactions. Commercial banks in Turkey have an option to keep a specified portion of their reserve requirements as standard gold according to the ratios determined for types of liabilities.

Inasmuch as financial risks remained persistently high in 2018, the CBRT took all necessary measures to protect and effectively manage reserves under its reserve management strategies.

Chart 2.6.1: CBRT FX and Gold Reserves between 2001 and 2018 (USD Billions)

Chart 2.6.2: CBRT FX and Gold Reserves in 2018 (USD Billions)

Source: CBRT

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488.9 tonsBy 31 December 2018, the gold holdings were 488.9 tons, accounting for 21.6% of total reserves.

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The organization structure of the CBRT was renewed as of 1 March 2018. Accordingly, to ensure corporate and holistic management of risks that the CBRT may face, the Corporate Risk Management Department has been established. This department consists of the Financial Risk Management Division, Operational Risk Management Division and Compliance Division.

Under the financial risk management, credit, market and liquidity risks that the CBRT may be exposed to due to its operations are managed in cooperation with business units. Almost all financial risks resulting from CBRT operations emerge in the course of fulfilling legal duties such as implementing monetary and exchange rate policies, managing foreign exchange reserves, and providing certain banking services to the banking sector and the government. Financial risks that the CBRT encounters while implementing monetary and exchange rate policies in its capacity as the monetary authority are a consequence of the policy targets chosen. On the other hand, FX reserve management-related financial risks emerge as a consequence of an investment preference. The CBRT endeavors to minimize such risks by managing them in a conservative manner. FX reserves are managed within investment criteria defined in the Guidelines and within objectives and limits set by the benchmark portfolio to be implemented in the following year. The credit risk mainly results from investment transactions performed during FX reserve management, open market operations performed to provide banks with short-term liquidity under monetary policy implementation, IMM transactions, and transactions of intraday liquidity facility offered to banks. The CBRT’s credit risk arising from monetary and exchange rate policy-related transactions was managed by collateralizing the whole amount of transactions, including a specified amount of margin, with securities of very high credit worthiness that can also be traded on secondary markets (such as FX deposits, GDDS and securities issued by advanced countries’ treasuries or by international institutions) and by regularly monitoring the current risks and asking for additional collateral.

The FX reserve management-related credit risk is managed based on the principle of minimizing the trading partners’ probability of default and the financial loss that may occur in case of default. Accordingly, the CBRT employed a risk management procedure with three pillars to minimize the credit risk it becomes exposed to during its FX reserve management. Firstly, it limited its investments to leading international financial institutions and borrowers with high credit quality that comply with the minimum credit rating criterion defined by the Guidelines based on credit ratings given by international credit rating agencies (CRA). Secondly, the total of transaction limits defined to control all credit risks, including the swap risk, that arise from transactions with financial institutions was limited to a specified ratio of manageable reserves. Thirdly, among the institutions complying with the Guidelines-defined minimum credit rating criterion, those which could also conduct transactions by using main and financial analysis methods were identified, and a credit risk limit was defined for each one. The total of these limits was capped by a specified ratio of the CBRT’s FX reserves. In this scope, credit risk indicators of all the CBRT’s trading partners were closely monitored and reported to the senior management periodically. During the management of FX reserves, exchange rate, interest rate and price fluctuations in international markets also lead to market risk. Under the market risk management, compliance with the objectives and limits defined by the annually-set benchmark portfolio was monitored and reported to the senior management.

2.7 Corporate Risk Management Activities

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Another important risk encountered during reserve management is the liquidity risk. This risk refers to the probability of incurring loss when meeting sudden unpredictable need for FX liquidity. To manage liquidity risk, compliance with the limits set by the benchmark portfolio is monitored and reported to the senior management.

Credit, market and liquidity risks at national and/or international financial system level, which may cause major financial losses with spillover effects on the CBRT’s balance sheet, are defined, measured, monitored and reported as systemic risk factors.

Under the operational risk management, the CBRT engages in activities consisting of defining and measuring operational risk factors, prioritizing and periodically reporting these risks, making risk assessments regarding business continuity management, preparing business impact analyses and ensuring cooperation in emergency management. Accordingly, risk matrices were designed to form the basis of the operational risk management methodology and a guide on the application of these matrixes was drawn up. Additionally, training activities were organized to increase risk awareness. Work was carried out to measure natural risks inherent in all business processes and to identify risk-based main processes, and the CBRT’s operational risk map was drawn. Starting with prioritized risks, risks included in the processes of identified business units were analyzed in detail by means of risk matrices, and corrective and preventive actions were planned after the residual risks were measured. Incident record reporting practice was put into effect and operational risk incidents at the CBRT as well as the measures taken were monitored and reported. Under business continuity management, in cooperation with business units, business continuity implementation plans were tested in emergency backup centers.

Lastly, the CBRT carried out work to define, measure and report on risks related to legislative harmonization, and to recommend measures for these risks in cooperation with business units. To ensure that the CBRT is protected against risks related to laundering of proceeds of crime and financing of terrorism and that the CBRT’s activities are carried out in accordance with the national and international legislation on the prevention of the laundering of proceeds of crime and financing of terrorism, monitoring and controlling activities regarding the transactions and customers in certain risk groups as well as transactions with risky countries were ensured. Following the risk assessments based on these activities, the CBRT contributed to the development of some in-house applications.

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Preparatory work on the new strategic plan for 2019-2021 was initiated in March 2018. In addition to a detailed survey of literature, studies and research were conducted with a large number of central banks.

When drafting the new strategic plan, the CBRT got in touch with many internal and external stakeholders. Accordingly, CBRT employees at all levels were contacted and their opinions and experiences contributed to the content of the plan. Through external stakeholder analyses, recent developments particularly in modern central banking were closely examined, which provided a good vision for the future needs of central banking.

The new strategic plan prepared based on this background work opens with the foreword of the Governor. The first section of the plan presents the mission and the vision of the CBRT. This section also includes a situation assessment that emphasizes the necessity of transformation and accordingly lists the priorities of the CBRT on the way to establishing the Central Bank of the Future.

The mission of the CBRT is to contribute to social welfare by achieving price stability and supporting financial stability. The vision of the CBRT is to become one of the leading central banks of the world with its insight of independence, credibility, effective organization, qualified human resource, innovative approach, effective communication and advanced technological infrastructure.

In the new strategic plan, the priorities are categorized under focus areas in light of CBRT’s mission and vision. Focus areas are used to increase research and analysis competencies, and are aimed at developing a communication and cooperation structure that will reinforce the effect of decisions. On the other hand, the operational structure has been redesigned so that it can meet the contemporary requirements of global central banking. In this strategic plan period, the ultimate plan is to ensure that innovative technologies are employed at the CBRT and the infrastructure is improved in line with a new vision, and to continue attracting qualified human resources to the CBRT, offer personal development opportunities to employees, and develop a transparent and measurable performance system. Finally, the CBRT aims to strengthen the culture of corporate identity and collaboration through common values.

In a period where global developments and innovations make transformation inevitable, the 2019-2021 Strategic Plan, which was completed by the end of 2018, serves as a vision document defining the transformation process that the CBRT has initiated to meet this inevitable need.

2.8 2019-2021 Strategic Plan Activities

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Turkey’s screening process, which is the first phase of EU accession negotiations after Turkey was given a candidate country status by the EU, began on 3 October 2005 and ended on 13 October 2006. The EU harmonization process of Turkey continues. Table 2.9.1 shows developments in the chapters in which the CBRT participated in this screening and negotiations process.

The current situation in EU Chapters that directly concerns the CBRT is as follows: negotiations on chapters “18. Statistics” and “32. Financial Control” were opened on 26 June 2007, while chapters “4. Free Movement of Capital” and “17. Economic and Monetary Policy” were opened to negotiations on 19 December 2008 and 14 December 2015, respectively. “Chapter 9. Financial Services” is one of the eight chapters that were suspended by a resolution passed at the EU summit of 14 15 December 2006, mandating that their negotiations be blocked until the EU Commission verifies that Turkey fulfills its commitments with respect to Southern Cyprus. Nevertheless, in the framework of harmonization with EU acquis in Chapter 9, Turkey put into force the Law No. 6493 on 27 June 2013. This Law also provides harmonization with the relevant EU legislation in “Chapter 4. Free Movement of Capital.” “Chapter 33. Financial and Budgetary Provisions” was opened to negotiations on 30 June 2016. However, one more technical criterion has been introduced for the provisional closure of these negotiations in addition to the full implementation of the Annex Protocol.

Since the onset of technical negotiations with the European Commission, three of six closing benchmarks for “Chapter 32. Financial Control” have been satisfied. Of these three benchmarks, the CBRT has contributed to the closing criterion of “legal and administrative alignment with the Council Regulation (EC) 1338/2001 laying down measures necessary for the protection of the euro against counterfeiting.” Among the chapters with which the CBRT is indirectly involved, “Chapter 28. Consumer and Health Protection” was opened to negotiations on 19 December 2007, “Chapter 6. Company Law” on 17 June 2008, and “Chapter 16. Taxation” on 30 June 2009. Opening benchmarks have been established for “Chapter 19. Social Policy and Employment,” while “Chapter 2. Free Movement of Workers” is still under review by the European Council.

The CBRT continues to provide the Turkish Ministry of Foreign Affairs, Directorate for EU Affairs with information concerning the developments in the chapters for which it is responsible so that the Ministry can monitor the progress being made in Turkey’s harmonization with the EU Acquis and forward this information to the European Commission.

2.9 European Union Harmonization Activities

Table 2.9.1: The Status of the Chapters in which the CBRT Participated in the Screening Process and Accession Negotiations

Directly Related Chapters Final Status in Negotiations Indirectly Related Chapters Final Status in

Negotiations4. Free Movement of Capital Negotiations commenced

(19 December 2008) 2. Free Movement of Workers In progress at the Council

level9. Financial Services Negotiations suspended

(14-15 December 2006)6. Company Law Negotiations commenced

(17 June 2008)17. Economic and Monetary Policy

Negotiations commenced (14 December 2015)

16. Taxation Negotiations commenced (30 June 2009)

18. Statistics Negotiations commenced (26 June 2007)

19. Social Policy and Employment Opening benchmarks defined

32. Financial Control Negotiations commenced (26 June 2007) Added to Positive Agenda

28. Consumer and Health Protection Negotiations commenced (19 December 2007)

33. Financial and Budgetary Provisions

Negotiations commenced (30 June 2016)

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Economic and Financial Dialogue with the EU

On 3 May 2018, an “Economic and Financial Dialogue” meeting of experts was held in Brussels. At the meeting, participants discussed assessments of the progress that Western Balkan countries and Turkey had made in the first phase of their Economic Reform Programs (ERP) and the countries’ responses to the assessments and corrections they requested to be made in the European Commission’s final declaration.

On 15 May 2018, a meeting of high level officials was held in Brussels as part of the Economic and Financial Dialogue between the EU and the Western Balkans and Turkey. During this meeting, participants debated a Draft Joint Resolution prepared by the Economic and Financial Committee (EFC) secretariat concerning candidate countries (Albania, Macedonia, Montenegro, Serbia, Bosnia Herzegovina, Kosovo, and Turkey) that had been drawn up at the 3 May 2018 meeting of EFC experts. At this meeting, the text of the joint resolution was finalized for submission and approval at the Economic and Financial Affairs Council (ECOFIN) EU and Candidate Countries Ministerial Dialogue Meeting.

On 25 May 2018, a meeting of Economic and Financial Dialogue between the EU and the Western Balkans and Turkey was held in Brussels. This meeting, which is the highest-level meeting with respect to economic dialogue between the EU and candidate countries, was attended by economy/finance ministers of member and candidate states. At this meeting, the text of the joint resolution prepared at the EFC High-Level Officials Meeting that took place on 15 May 2018 was approved.

On the other hand, the spring and fall Economic Forecast by Candidate Countries meetings that are held twice a year in Brussels by the European Commission took place on 14 April and 18 October 2018, respectively. During these meetings, EU Commission economists and other participants discussed economic and financial forecasts, data and information on related matters.

Moreover, the Turkey EU Association Committee set up under the Ankara Agreement between Turkey and the EU held its 126th meeting on 28 November 2018 in Brussels. The meeting focused on the ERP, the economic governance pillar of the EU expansion strategy.

THE CBRT CONTINUES TO PROVIDE THE TURKISH MINISTRY OF FOREIGN AFFAIRS, DIRECTORATE FOR EU AFFAIRS WITH INFORMATION CONCERNING THE DEVELOPMENTS IN THE CHAPTERS FOR WHICH IT IS RESPONSIBLE SO THAT THE MINISTRY CAN MONITOR THE PROGRESS BEING MADE IN TURKEY’S HARMONIZATION WITH THE EU ACQUIS AND FORWARD THIS INFORMATION TO THE EUROPEAN COMMISSION.

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The CBRT works diligently to guarantee an effective communication strategy in order to improve the effectiveness of its monetary policy and adhere to the principle of accountability associated with the Bank’s instrumental independence. Keeping the public informed about monetary policy actions and the rationale for these actions is very important because it not only helps them gain support when they are properly understood by the public but is also conducive to a more credible monetary policy and better-anchored expectations.

For the CBRT, accountability means being accountable to the public for its decisions, their consequences and its corporate governance. To maintain price stability and to fulfil its responsibility towards society, the Bank continued to engage in efforts to ensure that its actions and intentions were accessible to and correctly understood by everyone. The CBRT also sought to enhance its own credibility and effectiveness.

Rules governing the CBRT accountability are stipulated in Article 42 of the Bank Law. As required by the principle of accountability, the CBRT continued to publish its analytical balance sheet on its website on a daily basis. The Bank issued a report explaining the results of the independent audits of its balance sheet and income statement. Similarly, the rationale for CBRT policy decisions and the repercussions of such decisions were also publicly announced through regular reports and presentations.

Under the current monetary policy regime, the CBRT’s main communication tools are MPC announcements and Inflation Reports. Inflation Reports follow a pre announced calendar and contain information about international economic developments, the inflation outlook, supply and demand conditions, general assessments concerning financial markets, financial intermediation and public finance, and medium term inflation forecasts. These reports also included text boxes dealing with current issues concerning the Turkish economy. In 2018, Inflation Reports were presented at press conferences on 30 January and 31 July in Ankara and on 30 April and 31 October in Istanbul. All press conferences were broadcast live on the CBRT website as usual and the proceedings were simultaneously translated into English for non Turkish audiences. The July and October press conferences were also live streamed on the Bank’s official Twitter account.

The CBRT continued to post on its website the MPC decisions on short term interest rates and other monetary policy instruments along with summaries of MPC meetings held on scheduled dates specified in the “Monetary and Exchange Rate Policy for 2018.” Information about the CBRT’s most important activities and about changes in implementation that were of significant concern to the public were disclosed by means of 51 press releases in 2018. The Bank announced its Monetary and Exchange Rate Policy for 2019 on 5 December 2018.

To help promote better public understanding of monthly inflation developments, the CBRT also continued to issue a report on Monthly Price Developments on the first business day following the release of inflation figures.

According to a pre announced schedule, the Bank posted Financial Stability Reports on its website on 31 May and 30 November 2018. In the Financial Stability Reports, the CBRT shared its perspective on the overall financial system with respect to the most recent financial stability developments in Turkey and abroad.

As part of direct communication activities, Governor Murat Çetinkaya conducted a series of domestic and international presentations and speeches concerning CBRT policies and practices and current economic developments. Governor Çetinkaya took part in a variety of meetings and conferences and explained CBRT policies to audiences.

2.10.1 Accountability and Monetary Policy Communication

2.10 Communication Activities

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To achieve uniformity of style across internal and external communication, the CBRT created a new corporate identity that combined all corporate design elements in one place. The new corporate design came into effect on 1 January 2018.

The Bank’s website, i.e. its main communication channel, was redesigned to meet current technological trends and user demands, and all online texts and content plans were reviewed. With a new image corresponding to the new corporate design and renewed content, the new website was launched on 2 February 2018. This update was built to meet user needs and habits and employed simple and concise content planning.

The mobile app that the Bank uses to diversify its digital platforms underwent changes in both layout and content to reflect current practice. The updated version was published on Android and iOS markets in November 2018.

Having been online since December 2016 to help bank professionals share their views with the public, open these views to discussion, and provide timely contributions to the economic agenda, the CBRT corporate blog continued to feature new analyses and videos, and its website was redesigned as well. Thirty-six new analyses and two new videos were published on the blog throughout the year. The CBRT blog is located at CBRTblog.org and can be followed on Twitter @CBRTBlog.

The CBRT continued to have an active presence on social media and enrich its social media posts with visual content. The Bank made intensive and effective use of Twitter in particular, reaching 196,000 followers on its Turkish Twitter account.

As a means to reach its target audience including young people, the Economics for All initiative opened up an Instagram account called “Economics for All.”

The corporate strategy on using Facebook was changed in 2018. On its Flickr account, the CBRT continued to share photographs from events and activities organized by the Bank. In addition, the CBRT published a broad range of video content, from the Governor’s speeches to Inflation Reports, Financial Stability Reports, the Monetary and Exchange Rate Policy for 2018, various CBRT events as well as Economics for All videos, on its YouTube channel.

To provide correct and up-to-date information on the Bank’s history, corporate structure and main duties, the Bank prepared a publication titled “The Central Bank of the Republic of Turkey History and Duties.” Printed copies were distributed to universities across Turkey while the electronic version was published on the Bank’s website. Its English translation was also published online in December.

Moreover, the CBRT issued an online booklet, “Central Banking in 100 Questions,” on the Bank’s main duties, corporate structure and monetary policy.

The CBRT continued to respond to requests for information sent through the Right to Information Unit (BES) established under the Right to Information Act, the Presidential Communication Center (CİMER) and the Bank’s e-mail address, [email protected], which is used for communicating with individuals and institutions outside the Bank. Applications received via BES, CİMER and [email protected] totaled 3,219 (448 through e-government), 2,097 and about 9,010, respectively.

On 14 February 2018, a mobile app for the Electronic Data Delivery System (EDDS) was launched.

2.10.2 Communication Activities for the General Public

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The CBRT continues with the Economics for All program it started to raise awareness about the importance of price stability and to teach economics to various types of learners. This program features publications, events and similar communication activities for various target groups and aims to enable all target groups to have access to different levels of tools and content published on its own microsite about the importance of price stability, the role of a central bank in the economy, and current economic issues.

One of the key parts of this initiative is the Economics for All microsite. Launched on 2 February 2018 to explain basic economic concepts, the Economics for All microsite is a pioneer of its kind in Turkey. The microsite uses various forms of content such as videos, booklets, infographics and tests to raise awareness on the basic principles of economics and the CBRT’s main functions. Aiming to raise the level of economic literacy, the microsite featured more than 60 posts on basic economic concepts, central banking and current economic developments.

In 2017 and 2018, a team of “Educational Volunteers” from bank employees visited primary schools in the pilot project area in Ankara. Accordingly, the team taught fourth graders about economics for one school hour on site across five primary schools and introduced about 670 students to concepts such as money, the function of money, inflation, price stability and central banking in an age-appropriate way.

The Bank also continued to organize half-day University Gatherings to inform students of the CBRT’s administrative structure and main functions as well as the job placement process and career opportunities at the CBRT, and facilitate a question/answer interaction between students and Bank employees. Organized in both spring and fall semesters, these events attracted up to 1,000 students from various universities.

The “Economics for All in Anatolia” project was launched to reach out to the whole country and visits to primary, secondary and higher-level educational establishments in seven cities across seven regions are planned by the end of 2019.

The first leg of the project was held in Gaziantep between 17 and 19 October 2018. The second leg was held in Bursa between 19 and 21 December 2018. As part of our outreach event series, primary and secondary school teachers that participated in Teacher Gatherings were introduced to the Economics for All program, the CBRT and monetary policy as well as educational materials that can be used in the classroom. In each city, school visits targeted grades four, seven and eleven. In these seminars, students were informed about money, the CBRT and inflation using age-appropriate presentations, videos, games and contests. Additionally, the Bank conducted University Gatherings for students of Economics and Administrative Sciences in each city visited. These events involved presentations by CBRT directors about central banking and price stability, Q&A sessions and various contests, and reached out to 3,000 participants.

2.10.3 Activities on Financial Education and Economy Education

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Course plans, infographics, activity plans and similar educational materials related to the Economics for All program that may benefit pre-school and primary school teachers are published on the CBRT’s website. These materials can also be found on the educational informatics network of the Ministry of Education (http://www.eba.gov.tr/eicerik/CBRT), making them accessible to a larger audience.

On 12 May 2018, the CBRT organized a Youth Forum in Istanbul to raise public awareness about price stability, foster bilateral communication between the Bank and university students, one of the Bank’s target groups, and help this audience better understand monetary policy actions. This one-day event brought together university students who have keen interests in economics, watch the economy closely, and try to understand and interpret economic developments in a better way. During the event, participants asked questions to prominent economists and CBRT directors regarding economy and monetary policy, and had the chance to express their personal views. Participants also competed in teams to win a prize for a presentation on “Why is Price Stability Important for You?.” The team with the most votes from participants and CBRT employees was rewarded. Moreover, a quiz game enabled students to both test their knowledge of monetary policy and have fun. About 160 students from 16 universities participated in this activity.

In order to have stronger relationships and bilateral communication with press members, who serve as a gateway to the public, give them more insight into CBRT-related issues and make CBRT announcements and data releases well-understood, the Bank organized two Press Gatherings, one on 13 April 2018 in Ankara and another on 17 November 2018 in Istanbul, in which a total of 50 press members participated.

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In 2018, the CBRT organized meetings and teleconferences with Investor Agencies and Credit Rating Agencies (CRAs), participated in investor meetings abroad, and collaborated with the Turkish Investor Relations Society (TUYID). Throughout the year, the CBRT held technical level face to face meetings with investors at regular intervals at its Head Office. In 72 meetings, the Bank met with a total of 423 investors, analysts and economists, representing 262 financial institutions. In the same period, 15 meetings were held with CRAs, five of which were teleconferences.

2.10.4 Investor Relations

Table 2.10.4.1: Meetings Held in 2018

PeriodMeetings with

CRAsMeetings with

Investor AgenciesNumber of

Investor AgenciesTotal Number of Attendants

January-March 2018 3 23 59 107April-June 2018 4 19 63 101

July-September 2018 4 16 93 141October-December 2018 4 14 47 74

In addition to investor meetings that took place at the CBRT Head Office, the Bank participated in the investor meeting, “Turkey Macro and Credit Conference,” organized by JP Morgan in London on 26 March. Moreover, the CBRT collaborated with the TUYID on two seminars in Istanbul on “The Role of CBRT Policy Actions in Investor Relations” in May and November to provide investor relations professionals with up-to-date information about the Turkish economy and monetary policy issues and to exchange views. Apart from that, Bank staff attended a variety of training programs, seminars and conferences, both in Turkey and abroad, through 2018.

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The 39th meeting of the Central Bank Governors’ Club of Central Asia, Black Sea Region and Balkan Countries, which was founded on the initiative of the CBRT, was hosted by the CBRT on 13-15 May 2018. The main themes of the meeting were the global economic outlook and financial conditions, the sustainability of a global economic upturn, and the advantages and challenges of central bank digital currencies.

In order to increase cooperation among the Governors’ Club member countries and to help with the preparations of the Governors’ Club meetings, the “Monetary Policy and Financial Stability Working Group,” established on the initiative of the CBRT, met two times in 2018, first on 26 January in Istanbul and later on 2 July in Bucharest. The subjects selected for discussion were the global economic outlook and financial conditions, spillovers of major central banks’ policy normalization to emerging economies, the sustainability of a global economic upturn, policy responses to capital outflows and the benefits and risks of faster payment systems.

The workshops on “OIC Economic Outlook” and “Financial lnclusion” founded on the initiative of the CBRT under the OIC, held their first meeting on 9-10 April 2018 in Istanbul. The final report on workshop outcomes was presented to Central Bank Governors at the 16th Meeting of the Central Banks and Monetary Authorities of OIC Member Countries. This meeting was held on 23-25 September 2018 in Antalya. The declaration published at the end of the meeting stated that the “Central Banks and Monetary Authorities of OIC Member Countries” would move their operations to the “OIC-COMCEC Central Banks Forum” and the CBRT would undertake the duties of its secretariat.

As part of the routine Article IV consultations with 189 members, an IMF delegation came to Turkey to discuss economic and fiscal policies. During this visit, meetings were coordinated by the CBRT and the Ministry of Treasury and Finance. The Bank contributed to the preliminary meeting held between relevant institutions before the delegation’s arrival and later attended the meetings with the IMF.

The Bank continued to seek stronger communication and bilateral cooperation with other central banks. In 2018, five new memorandums of understanding were signed with the Central Banks of Romania, Moldova, Hungary, Sudan and Kosovo to strengthen collaborations: the first three at the 39th Governors’ Club Meeting held between 13 and 15 May, and the rest in June and October, respectively. These new memorandums of understanding helped strengthen the CBRT’s network of international ties across a broad region that embraces the Balkans, the Black Sea basin, Eastern Europe, North Africa and the Middle East.

Established in 2017 to enhance the effectiveness of the cooperation between the CBRT and other central banks and to allow the CBRT departments to benefit more from such cooperation, the “Committee of Cooperation with Central Banks” met four times in 2018. At these meetings, the committee assessed the activities held in 2017 and planned for 2018 and discussed expectations from departments regarding cooperation. Moreover, through the year, the committee shared periodic updates on cooperation with foreign central banks, assessed department demands and worked on the cooperation planning schedule for 2019.

Continuing to diversify its activities with the central banks with which it already cooperates, the CBRT intensified its current collaboration with the European Central Bank (ECB) and with the Italian and Ukrainian Central Banks. Staff were mutually seconded with the aim of sharing experience while working visits and workshops were conducted and joint seminars and conferences were organized.

2.11.1 Relations with International Organizations

2.11.2 Relations with Central Banks

2.11 International Cooperation and Events

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As per the memorandum of understanding signed between the ECB and the CBRT, the Bank provided a seven-month staff secondment at the Stress Test Division of the ECB to work on the restructuring of the Stress-Test Analytics for Macroprudential Purposes in the Euro Area (Stamp€) framework. Likewise, pursuant to a memorandum of understanding, the Bank seconded employees to the Italian Central Bank for one month to work on intranet and internet management, digital content production, social media engagement, campaign management, and social media content planning.

To engage in high level dialogue, the CBRT conducted governor/deputy governor level meetings with the central banks of Albania, Germany, Indonesia, Georgia, Croatia, Italy, Malaysia, Ukraine, Kyrgyzstan, Kosovo, Sudan, Mongolia and the ECB. Much of the discussions at these meetings focused on the overall economic outlook and future bilateral cooperation.

To broaden the scope of technical collaboration, the Bank initiated activities of technical collaboration with new partners and worked on successful projects with the central banks of South Korea, Singapore, Brazil and Mexico.

The regional central banking seminar, which met in 2017 for the first time, focused on the role of central banks in economics education in 2018. Taking place in Istanbul in September, the seminar attracted 41 participants from the central banks of Albania, Azerbaijan, Bosnia Herzegovina, Canada, Croatia, Georgia, Hungary, Italy, Kosovo, Montenegro, Poland, Romania, Serbia, Ukraine and the ECB. Discussions centered around the importance of economic literacy for central banks, the use of plain language and the methods they use to reach out to a larger audience.

In line with its mutual and regional collaboration strategy, the Bank conducted another multilateral seminar on “Instruments Designed Against Global and Country-Specific Shocks and Their Impacts” in November in Istanbul. This seminar brought together the markets departments of peer emerging market central banks and enabled them to exchange experiences and technical information on new tools. Moreover, future financial risks and effective policy responses were discussed.

Bilateral working committees serve as another mechanism, by means of which the CBRT is able to engage in dialogues with other central banks. The eighth meeting of the Turkish Russian Working Group on Banking and Financial Cooperation was hosted by the Russian Central Bank on 19-21 June 2018. At this meeting, discussions centered around how to encourage trade in local currencies, accompanied by a strengthened correspondent banking relationship as well as current and future steps to enhance the cooperation between the financial sectors of both countries.

Decisions taken at this meeting were followed by another meeting on 14 August 2018 in Istanbul on improving the Turkish-Russian Banking Cooperation. Presided over by officials from the CBRT and the Russian Central Bank, the meeting was attended by the Turkish Ministry of Trade, BIST, Türk Eximbank, the Development and Investment Bank of Turkey (Development Bank), representatives from commercial, investment and participation banks and, on behalf of Russia, the Ministry of Economic Development, Moscow Exchange, trade attachés to Turkey, and representatives from relevant banks and companies. During this meeting, participants delved into mutual banking issues and possible solutions and sought new cooperation opportunities.

In addition, the Working Committee set up with the Iranian Central Bank in 2017 convened for the fourth time on 26-27 February 2018 in Isfahan, and for the fifth time on 27 September in Istanbul. The Working Committee established as per the memorandum of understanding signed between the CBRT and the Ukrainian Central Bank in 2017 held its first meeting on 4 April 2018 in Ankara.

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As a member, the CBRT attended the biennial general meeting and the Policy Committee meeting of the European Banknote Conference on banknote printing and cash management organized by European central banks and printing houses. The Bank participated in two technical sub units of this conference: the Banknote Security Committee and the Manufacturing Process Committee. In addition, CBRT representatives also took part in the activities of the Policy Committee Advisor Group, which is responsible for assessing the effectiveness of the conference’s management and operations.

Using the banknote processing systems (BPS) supplied by Germany based Giesecke&Devrient (G&D), the CBRT is a member of the BPS International Users Group, whose membership is made up of central banks and banknote printers using BPS machines and whose aims are to enable users to exchange views and experience about the use of G&D systems and to enable system updates in line with technological innovations. In 2018, the Bank sent representatives to take part in the biannual meetings of the BPS Technical Advisory Group, the technical sub-unit of the above group.

As Turkey’s representative since 2009, the CBRT participated in and contributed to BIS-hosted Committee meetings organized by the CPMI in February, June and November. The Bank also took part in the activities and meetings of working groups set up under the CPMI. In this regard, some of the working groups in which the CBRT participated published their final reports in 2018 while others continued to work on fulfilling their mission briefs. Accordingly;

• Having published its “Guidance on Cyber Resilience for Financial Market Infrastructures (FMIs)” in June 2016, the Cyber Resilience Working Group, which is co chaired by the CPMI and the IOSCO, continued its efforts both to determine the degree to which the principles set forth in that guidance are being complied with and to foster collaboration and the sharing of knowledge and experience among group member countries. In this context, a workshop was held on 12-13 June 2018 in London that brought together risk, security and technology specialists and administrators of FMIs, system participants, service providers, authorities and other representatives from the sector to foster the cyber resilience objectives of FMIs and discuss relevant challenges and solutions.

• The Report on Cross Border Retail Payments prepared by the CPMI Retail Payments Working Group was published in February.

• The CBRT participated in a meeting of the CPMI-World Bank task force on Payment Aspects of Financial Inclusion held on 1-2 October in Abu Dhabi.

• The CBRT contributed to the task force established in September 2016 on the initiative of the CPMI to respond to the increasing threat of wholesale payments fraud. Convened to look into the security of wholesale payments, particularly related to endpoint security, that involve banks, FMIs and other financial institutions, this task force published a final strategy on 8 May 2018, which reflects feedback received during consultation with CPMI-member central banks, including the CBRT, and the CBRT’s answers for the relevant CPMI questionnaire were sent back in September.

The draft CBRT Payment Systems Strategy prepared in this regard was shared with participants on 7 August 2018. Taking its final form based on feedback from participants, the strategy is planned to be published in January 2019.

• The Bank participated in several meetings of the Real Time Gross Settlement Workshop: “The Future of RTGS” on 20-21 February 2018 in Basel, Switzerland and on 24-25 April 2018 in Tokyo, Japan, and teleconferences at monthly intervals, except in July. The Group completed a report, “Real-time Gross Settlement Systems: A Survey of Changes in Access, Interoperability and Operating Hours,” which analyzes the current state of RTGS systems in light of various statistical data and awaits approval by the CPMI committee. Another work by the group, the note on “Policy Implications of Recent Changes in Real-time Gross Settlement Systems” is still in progress.

2.11.3 Participation in International Working Groups

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• The CPMI’s Working Group on Digital Innovations (WGDI) worked on innovations in wholesale payments and prepared a report on “New Variants of Money: Digital Tokens for Wholesale Settlement” to be submitted to the main committee.

• The Bank attended the annual “G-20 Data Gaps Initiative” meeting held on 30-31 May 2018 in Basel, Switzerland and contributed to the “2018 Progress Report.”

Both being representatives of Turkey, the CBRT and the Turkish Statistical Institute (TURKSTAT) participated in the meeting of the Steering Group for the UN Economic and Social Commission for Asia and the Pacific and other workshops on 10 May 2018. Accordingly;

• The Bank contributed to the preparation of a regional survey questionnaire by the Capacity Screening Task Force and a report on “the Capacity Screening of Economic Statistics in Asia and Pacific 2017” published in October 2018. The CBRT representative was selected to chair the task force.

• Remaining a member of the Steering Committee, the Bank participated in the “Asia-Pacific Economic Statistics Week” on 7-9 May 2018 in Bangkok.

Being a member of the BIS-Irving Fisher Committee on Central Bank Statistics (IFC), the Bank attended relevant meetings and contributed to activity reports and presentations. The Bank also helped organize the ninth International IFC Statistics Conference on “Are post-crisis statistical initiatives completed?,” participated in the writing of the final report, and became a member of the Financial Stability Subgroup initiated to work on Fintech-related data issues and took part in its activities.

As a bureau member of the OECD Task Force on Finance Statistics, the CBRT took part in its bureau meeting and activities on 5-7 November 2018.

The CBRT is a member of the European Committee of Central Balance-Sheet Data Offices (ECCBSO) created to enhance cooperation among balance sheet offices operating under European central banks, develop data processing techniques and analyses and establish comparable datasets. In 2018, the Bank took part in the working groups BACH, FSA and ERICA operating under the ECCBSO and was selected to vice-chair the FSA working group.

Being a member since 2009, the Bank actively participates in the meetings of the World Bank’s International Committee on Credit Reporting (ICCR). In 2018, its periodic meetings were held on 5-6 April in the US and on 4-5 October in Argentina. These meetings were attended by representatives mostly from central banks and from international credit reporting agencies and unions. Of the three subcommittees on “Cyber Security,” “Innovations in Credit Reporting” and “Management and Administration,” the CBRT official was selected to the last two.

On 28 August 2018, the CBRT became a member of the International Network of Exchanging Experiences on Statistical Handling of Granular Data (INEXDA) working group launched by the central banks of Italy, France, the UK, Portugal and Germany. The main goal of this working group is to develop data access methods that enable users to have access to detailed data without breaching any confidentiality regimes and, thus, help them use granular data for analytical purposes.

In terms of anti-counterfeiting, the Bank joined activities of the Pericles 2020 program initiated by the EU.

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National and International Organizations

In its ongoing efforts to foster mutual relations and cooperation with other countries’ central banks and with international agencies and organizations, the CBRT conducted meetings, conferences, seminars and workshops for the discussion of current issues on the world’s and Turkey’s economic agendas.

The main events attended by the world’s leading academicians, central bank and financial industry representatives, central bankers and officials of international organizations last year are highlighted below:

• The CBRT Governors’ Club Task Force on Monetary Policy and Financial Stability meeting held in Istanbul on 26 January 2018,

• The IMF Article IV Consultation meeting held in Ankara on 13 February 2018,

• The “Policy Evaluation Workshop” held in Antalya on 23-24 March 2018,

• The OIC Member Central Banks and Monetary Authorities Working Group meetings held in Istanbul on 9-10 April 2018,

• The FSB Middle East and North Africa Regional Advisory Group meeting held in Istanbul on 4-5 May 2018,

• The BIS-IFC “Workshop on Commercial Property Price Indices” held in Cappadocia on 7-8 May 2018,

• The 17th Regional Payments Systems Workshop held in Antalya on 8-11 May 2018,

• The Governors’ Club meeting held in Bodrum on 13-15 May 2018,

• The meeting held with the Bank Association of Turkey (BAT) in Ankara on 11 June 2018,

• The Protocol Training for Macedonian Central Bank officials held in Ankara on 30 July-1 August 2018,

• The “2nd Regional Central Banking Seminar on Communication: Why Should Central Banks Care About Economic Education?” held in Istanbul on 14-15 September 2018,

• The OIC Member Central Banks and Monetary Authorities meeting held in Antalya on 23-25 September 2018,

• The 6th ECB-CBRT joint conference on “Modelling Macro-Finance Interaction” held in Izmir on 5-6 October 2018,

• The “8th International Seminar on Legal Aspects of the Central Banking” held in Istanbul on 11-12 October 2018,

• The FSB Middle East and North Africa Regional Advisory Group meeting held in Istanbul on 4-5 November 2018,

• The “CBRT Seminar on Policy Instruments Designed Against Global and Country-Specific Shocks and Their Impacts” held in Istanbul on 16-17 November 2018,

• The Statistical Reporting Certificate Program held in Istanbul on 5-6 December 2018,

• The “Conference on Changing Global Economic Landscape and Policy Implications for Emerging Economies” held in Antalya on 7-8 December 2018,

• The Search for Financial Technologies Conference held in Ankara on 17 December 2018.

2.11.4 Organizations

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CBRT Organizations

The following are meetings and seminars organized to contribute to the corporate transformation of the CBRT, foster collaboration both within and between departments and improve work processes:

• The CBRT Directors Meetings on 9-11 March 2018,

• The department seminar of Structural Economic Research on 24-25 March 2018,

• The department seminar of Research and Monetary Policy on 30 March-1 April 2018,

• The first seminar on banknote issuance for branches on 8-12 April 2018,

• The department seminar of Statistics on 13-15 April 2018,

• The department seminar of Banking and Financial Institutions on 27-28 April 2018,

• The transition seminar for the Department of Informatics Technology on 23 June 2018,

• The department seminar of Payment Systems on 6 October 2018,

• The second seminar on banknote issuance for branches on 18-20 October 2018,

• The first CBRT Organizational Culture Workshop on 1 December 2018,

• The Real Economic Activity Lens (REAL) workshop on 20-23 December 2018.

National and International Organizations Attended by the Governor and Deputy Governors

Below are some meetings the CBRT participated in to represent Turkey on international platforms and to foster the exchange of ideas with economy and finance experts. The Bank also met with investor groups throughout the year:

• BIS meetings held in Basel, Switzerland throughout the year,

• The Annual World Economic Forum (WEF) meeting held in Davos, Switzerland on 23-26 January 2018,

• The consultation meeting organized by the Turkish Industry and Business Association (TÜSİAD) in Istanbul on 6 February 2018,

• The investor meeting organized by Turkcell in Istanbul on 14 March 2018,

• The G20 Finance Ministers and Central Bank Governors meetings held in Washington D.C., US on 19-20 April 2018, in Buenos Aires, Argentina on 19-22 July 2018 and in Bali, Indonesia on 11-12 October 2018,

• The Spring Meetings of the IMF and the World Bank held in Washington D.C., US on 20-22 April 2018,

• The investor meeting organized by BoA Merrill Lynch in London, UK on 2 May 2018,

• The meeting organized by the Consulate General of Italy in Istanbul on 11 May 2018 and attended by a delegation of Italian business people,

• The BAT meeting in Istanbul on 27 May 2018,

• The Annual Meetings of the IMF and the World Bank held in Bali, Indonesia on 12-14 October 2018.

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In keeping with the importance that the CBRT attaches to academic studies, working papers and research notes prepared by the CBRT staff continued to be posted on the CBRT website in 2018. Twenty publications were added to the CBRT working papers series of peer reviewed research papers written by the CBRT staff members. In addition, another 15 new additions were made to the series of Research Notes that the CBRT publishes in order to contribute to discussions on economic issues in a timely fashion and to publicize the results of research about the Turkish economy and monetary policy.

Central Bank Review, a peer reviewed journal covering such topics as macroeconomic stability, financial stability, liquidity management, payment systems, and reserves management, was published by the CBRT four times in 2018.

Meanwhile, articles that were written with contributions of the CBRT staff were published in journals that are listed in the Social Sciences Citation Index.

The Research and Monetary Policy department held seminars as part of the department’s seminar series for the CBRT staff. During these seminars, presentations were given by participants from universities in Turkey and abroad, international organizations, and other central banks.

The Statistics Seminars organized by the Department of Statistics for both the CBRT and other public institutions enabled participants from universities, the public sector and the private sector to present their statistical work.

The Structural Economic Research Department of the CBRT continued to engage in research on identifying the structural factors that restrain the effectiveness of the monetary policy, to formulate policy proposals within the framework of inter agency cooperation, and to develop the corporate infrastructure for the work processes the department deals with.

This Department’s activities in 2018 may be summed up under four headings: (1) Work carried out within the scope of the Food Committee (2) Work related to meetings with the real sector (3) Research on the Turkish economy and monetary policy (4) Coordination with academic circles.

2.12.1 Academic Research and Development Activities

2.12.2 Research Activities on Structural Economic Developments

2.12 Research and Development Activities

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Structural and circumstantial measures taken within the scope of Food Committee decisions are designed from a price stability perspective in collaboration with institutions. With its long-term corporate experience on the pricing of food products, the CBRT provided guidance in monitoring food prices and identifying priorities in this field. Those who serve on the committee include top management positions from relevant institutions, and therefore a more solution-oriented cooperation could be established, paving the way for concrete policy measures.

Today, central banks design and implement their monetary policies based on a more diverse and richer set of information and incorporate real sector developments more and more into their decision-making process.

In interactions with the real sector, face to face meetings are held with firms’ senior decision makers. These meetings make it possible to obtain first hand information on economic activities and decision-making mechanisms of individual firms, and capture the real sector sentiment towards the economy in good time. Information obtained from these meetings help make better assessments about cyclical economic activity (production and sales, investment, employment, borrowing conditions, prices, and costs). The significance of these meetings lies in developing an understanding of the reasons behind the outlook signaled by indicators and data of economic activity and in monitoring developments that economic models may fail to detect. In 2018, a total of 2,021 firms were visited, of which 922 were manufacturers and 540 were wholesalers and retailers.

Firm visits aim to promote an exchange of views on monetary policy actions, contribute to the CBRT’s communication policy and communicate effectively with the real sector. The views of firms’ decision makers about policy actions and their expectations from the public sector were reported to the CBRT senior management without disclosure of their identities. Seeking to maintain continuous communication with the real sector on a more localized basis, the Bank opened new regional offices in Bursa and Samsun. In 2018, firm visits per regional offices were as follows: 678 in Istanbul, 323 in Izmir, 289 in Ankara, 245 in Adana, 177 in Bursa, and 135 in Samsun.

The Bank conducted analysis on structural issues such as Turkey’s economic growth, productivity, labor markets, foreign trade, public finance, savings, market structure and competition, research and development, entrepreneurship, human capital, education, migration and energy from the standpoints of financial stability and monetary policy. Nine new papers written by the staff of the Structural Economic Research Department were added to the Working Papers series and another three new additions were made to the series of Research Notes. Moreover, 13 articles that were written with contributions of the staff of the Structural Economic Research Department were approved to be published in journals that are listed in the Social Sciences Citation Index. These studies were presented to academicians and policy makers at various national and international seminars and conferences.

The same department also held 15 seminars as part of the department’s seminar series for the CBRT staff. During these seminars, presentations were made by participants from universities in Turkey and abroad, international organizations, and other central banks.

Detailed work was carried out in order to identify the structural factors that lead to inflation rigidity and persistence, to help work jointly with other relevant agencies and organizations, and to expand the analytical capacities of the CBRT’s technical units. In this regard, new protocols were signed with other agencies and organizations to enable data sharing and collaboration, and access was provided to new datasets that would make a major contribution to policy making.

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A number of research and development studies were carried out to help improve the banknote printing process. The main motor and driver of the Simultan offset printing press currently used to print banknotes were modernized.

The Banknote Design Project continued its work, improving the portraits and the engravings on the back. A signature change was made to the 20 lira banknote of the ninth emission group.

A new banknote was designed for the World Banknote Project (WBP) of the International Banknote Designers Association (IBDA), which was presented by the Banknote Printing Plant (BPP) at the project’s conference.

To verify its compliance with the latest 2015 revisions of ISO 9001 Quality and ISO 14001 Environmental Management System standards, the BPP underwent an audit by the Turkish Standards Institution (TSE) on 11-14 September 2018. As a result of the external audit, which also included OHSAS 18001 Occupational Health and Safety Management, the BPP’s certification of ISO 9001 Quality, ISO 14001 Environment and OHSAS 18001 Occupational Health and Safety Management was renewed.

Major transformation work was concluded in the field of Information Technologies (IT), and a large number of projects and infrastructure related works were carried out. The modernization of software projects was finalized, helping to save on infrastructure costs and to improve the platform size and quality of available software services. In addition, the IT department centralized its operations, supported corporate transformation with projects such as MONY and HR Transformation, and strengthened both internal and external digital channels.

A Press Releases System was launched to provide a more transparent and reliable way to make press announcements and provide easier navigation through announcements.

Particularly in the second half of 2018, some additional features were developed to have access to instruments and flexibilities needed for financial stability. In addition, a software infrastructure was developed for the Ministry of Treasury and Finance to be used in the newly designed security issuance models.

The installation of the Big Data Platform was completed to be at the disposal of users in their economic analysis and estimation work and was successfully integrated into our systems. To heighten corporate efficiency in data use, the department upgraded its Business Intelligence platforms by investing in infrastructure and software and initiated important and high value-added projects.

The department also conducted a maturity assessment on available IT processes to make them comply with commonly accepted best practices around the world, and thus built an integrated model of IT Governance that is service-oriented and on par with best practices.

To provide automation in the delivery of issued banknotes, a Cash Management System (CMS) was launched at the BPP on 10 August 2018.

Systems that run most of the CBRT’s critical applications and data were upgraded while the software levels of operating systems and related subsystems were updated. Technologically outdated hardware with expired support and high maintenance costs was pulled out of the platform.

A Check Monitoring and Encoding System was launched on 25 January 2018 at the request of the CBRT’s branches to encode and monitor CBRT checks more efficiently and effectively.

In line with improvements in the communication infrastructure of payment systems, devices at participation banks and CBRT headquarters were renewed, and all other no longer supported hardware was taken off the track.

2.12.3 Research and Development Activities on Banknote Printing

2.12.4 Research and Development Activities on Information Technologies

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During 2018, a total of 3,829 people took part in CBRT-organized training activities and 543 CBRT employees benefited from a variety of programs conducted by other institutions and organizations. Besides, a total of 21 CBRT employees took part in training activities organized in the country and abroad as instructor or speaker. Ten theses prepared by central bank assistant specialists were examined and found satisfactory by relevant thesis commissions.

The CBRT also provided its staff members with e-education (on-line education) opportunities. One such was an on-line foreign language education platform for executives to help them improve their knowledge in foreign languages. In the context of Occupational Health and Safety refresher training, e-education programs covering general, health-related and technical topics were made available to the relevant staff.

The CBRT organized the “Human Resources Competency Development Program” to enhance competencies of its employees working at managerial levels and the “Human Resources Basic Competency Development Program” for its mid-level employees to the same end and also to provide human resource for its management posts.

2.13 Training Activities

During 2018, a total of 2,992 CBRT employees attended in-house training programs on “Banking” (1,118 participants), “Development and Soft Skills” (1,827 participants), and “Conferences and Panels” (47 participants) (Chart 2.13.1.1).A total of 826 university students took part in last year’s CBRT pre-recruitment programs, five took part in the Internship Program, and another six took part in the CBRT International Internship Program.

In order to improve the quality of statistical reports submitted by banks to the CBRT, a “Statistical Reporting Certification Program” was held on 5-6 December 2018 in Istanbul. During this training program, the CBRT explained its data compilation principles, the intended purpose of CBRT statistics and the areas in which these statistics are shared. Moreover, the CBRT gave information on the scope of reports submitted to the CBRT by banks along with the underlying international statistical standards. A total of 54 participants coming from the banking sector were certified at the end of the program.

2.13.1 Training Programs Organized by the CBRT

Chart 2.13.1.1: Training Activities for CBRT Employees (Number of Employees)

Training Programs on Development and Soft Skills

61.0% (1,827)

Conferences and Panels

1.6% (47) Training

Programs on Banking37.4% (1,118)

Source: CBRT

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The Istanbul School of Central Banking organized a number of training programs jointly with national and international stakeholders, thereby contributing to the CBRT’s objectives. In this context, a total of 543 participants representing central bankers and related policy makers from 66 countries as well as employees working at national institutions attended these training programs.

The ISCB organized 20 international training programs in the form of seminars and workshops on issues pertinent to central banking. Of these programs, seven concerning cyber security, credit reporting systems, applied econometrics, making use of big data, corporates’ use of derivatives, financial technologies for financial stability and improvement of the efficiency and safety of national payment systems were organized for the first time in 2018. Likewise, a certification program for the “Balkan School of Central Banking” was also conducted for the first time last year. Designed for the central banks of Balkan states, this program consisted of four individual training sections with main headings of payment systems and tools, making use of big data in emerging market central banks, the corporate sector’s use of derivatives and implications for emerging market central banks, and applied econometrics for central bankers. The training was conducted as a single module extending through to two weeks.

International training programs organized by the ISCB are as follows:

• “Corporates’ Use of Derivatives and Implications for Emerging Market Central Banks” seminar on 26-29 March 2018.

• “Sectoral Financial Accounts” seminar on 11-13 April 2018

• “Internal Audit Practices at Central Banks” seminar on 6-19 April 2018

• “Balance of Payments and External Statistics” seminar on 24-27 April 2018

• “Central Bank Communication: How to Keep Up with the Latest Trends” seminar on 7-9 May 2018

• “Central Bank Policy Mix: Issues, Challenges and Policy Response” joint workshop with Bank Indonesia on 2-5 July 2018

• “Balkan School of Central Banking” certification program on 3-15 September 2018

• “Making Use of Big Data in Emerging Market Central Banks” seminar on 3-5 September 2018.

• “Payment Systems and Instruments” seminar on 10-13 September 2018

• “Prudential Supervision of the Banking Sector and Macroprudential Regulations” seminar on 24-27 September 2018

• “Foreign Exchange Reserve and Risk Management” seminar on 1-3 October 2018

• “Survey Design and Implementation” seminar on 8-12 October 2018

• “Cyber Security in Central Banks” seminar on 17-19 October 2018

• “Monetary Policy and Financial Markets” seminar on 5-8 November 2018

• “Applied Econometrics for Central Bankers” seminar on 12-15 November 2018

• “Cash Circulation Management” seminar on 19-22 November 2018

2.13.2 International Training and Technical Support Activities

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• “Challenges and Worldwide Applications of Credit Reporting Systems” workshop on 2-3 December 2018

• “Leveraging Fintech for Inclusive and Stable Financial Systems” joint conference with Toronto Center on 10 December 2018

• “Enhancing the Safety and Efficiency of the National Payments System” joint seminar with Toronto Center on 11-14 December 2018

• “Understanding Risk Management in Islamic Banking in the Times of Fintech” joint workshop with Toronto Center on 17-21 December 2018

The twenty training programs organized by the ISCB hosted 464 international participants representing 66 countries and 79 participants from Turkey (Chart 2.13.2.1).

The programs’ 464 international participants represented countries in Asia, Europe, Africa as well as North and South America (Chart 2.13.2.2).

Chart 2.13.2.1: Breakdown of Participation in ISCB International Training Programs (Number of Participants)

Chart 2.13.2.2: Regional Breakdown of Participation from Other Countries in ISCB International Training Programs (Number of Participants)

Participants from other countries

85% (464)

Participants from Turkey

15% (79) Europe25% (119)

Asia30% (140)

Middle East and Africa41% (191)

South America3% (12)

North America1% (2)


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Chart 2.13.3.1: Short-Term Non-CBRT Training Programs (Number of Employees)

Chart 2.13.3.2: CBRT Employees Attending Graduate Programs (Number of Employees)

A total of 177 CBRT employees attended short-term training programs organized by other institutions and organizations in Turkey and 182 CBRT employees attended such programs abroad. Additionally, 35 CBRT employees took part in training programs organized by other institutions and organizations under the Financial Support Program for Academic Studies (Chart 2.13.3.1).

During 2018, 117 CBRT employees, 24 of whom were recently enrolled, continued their graduate (Master’s and PhD) studies in Turkey, while 32 employees, including 10 recently enrolled, pursued their such studies abroad (Chart 2.13.3.2).

2.13.3 Training Programs Organized by Other Institutions and Organizations

Short-Term Training Abroad

46.2%(182)

Short-Term Training in Turkey44.9%(177)

Graduate Programs Abroad21.5%

(32)

Graduate Programs in Turkey78.5%(117)

Financial Support Program for Academic Studies

8.9%(35)


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The CBRT contributes to the promotion of Turkish painting on national and international platforms via exhibitions held in and out of the country, thereby displaying selected works of art from its art collection. Additionally, it also aims to ensure that Turkey’s cultural heritage is passed on to future generations.

Accordingly, the CBRT held the exhibition “The First Step towards the Malatya Modern,” which was curated by Prof. Burcu Pelvanoğlu of Mimar Sinan Fine Arts University, Department of Art History, at the Malatya Fehmi Kolçak State Gallery on 2-31 October 2018. The exhibition hosted 48 works of painting, sculpture and ceramics selected from the CBRT Art Collection.

As a part of the exhibition, a panel was organized on 7 October 2018, bringing together the curator of the exhibition, academicians and university students. Moreover, activities were held at the exhibition hall every day for primary school and fine arts high school students. Approximately 4,000 people visited the exhibition.

Another CBRT exhibition was held in Bursa at the Merinos Atatürk Culture and Congress Center of Bursa Metropolitan Municipality from 18 December 2018 to 15 January 2019. Curated by Prof. Pelvanoğlu, the exhibition Bakış (Glance) featured 29 works of art by 26 artists selected from the CBRT Art Collection. A panel was also held, at which Prof. Pelvanoğlu gave a speech, as a part of the exhibition. Additionally, a creative drama session was organized for high school students.

In the context of cultural and artistic activities, the CBRT organized “Mini Concerts” at its Art Center-Atrium to boost the synergy and solidarity among its employees.

In addition, the concert “Symphonic Folk Songs” was also organized at the Banknote Printing Plant Department on 15 November 2018. The Turkish Classical Music, Folk Music and Sufi Music Choirs, consisting of CBRT employees and retirees performed on 1 February and 26 April 2018, on 7 February and 8 May 2018, and on 29 May 2018, respectively, at Hacettepe University Culture Center.

In order to promote corporate identity on national and international platforms, bolster cultural and artistic activities, strengthen internal and external communication channels and to support photographic arts and photography artists, the CBRT organized its 2nd International Photography Contest with the theme “Economy and Crafts.” The contest attracted 8,891 photographs by 2,534 photography artists representing 75 countries.

The contest, the jury of which consisted of photography artists İbrahim Zaman, Ersin Alok, İlyas Göçmen, Tekin Ertuğ and Nurullah Genç, was conducted with the support of the International Federation of Photographic Art (FIAP) and the Photographic Arts Federation of Turkey (PAFT). At the end of the contest, three photographs won awards, 10 received honorable mentions, 60 were selected for exhibition and one photo was awarded with the CBRT Special Prize. The first place was awarded to Abhijit Banerjee from India for his photo “Life and Livelihood.” A total of 74 photographs, 32 of them by foreign photographers, were awarded at the end of the contest. The award ceremony and the exhibition featuring awarded photographs took place in Ankara.

In the context of internal communication and sporting activities, the CBRT organized its 9th Sports Festival, which hosted staff from the CBRT Head Office and Branches, on 21-22 April 2018 in Antalya to enhance communication and motivation among its employees. During the festival that has already become a tradition with increasing interest, a total of 738 participants competed in 11 fields this year. The sports festival, conducted in a friendly environment, attracted approximately 1,200 people including family members of the participating staff.

2.14 Culture, Art and Sports Activities

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In order to strengthen motivation and internal communication among CBRT staff employed at branches, a simultaneous “Trekking” activity was organized on 12 May 2018, in which employees from all branches participated together with their family members.

The CBRT opened the new premises of its Sports Center on 26 September 2018. Refurbished with new, high-quality equipment, the sports center will help improve the quality of life of employees and help them get rid of stress, thereby boosting their productivity at work.

Within the context of sports activities, the CBRT football team became the European Champion in the Euro Football (Italy) tournament, in which 16 teams competed. The tournament was hosted by member central banks of the European Central Banks Culture and Sports Clubs Union, of which the CBRT is a member. Moreover, the CBRT also participated with its relevant teams in the Euro Tennis (Greece), Euro Volleyball (Hungary), Euro Swim (Malta) and Euro Chess (Belgium) tournaments.

Within the context of the activities of the European Central Banks Culture and Sports Clubs Union, the CBRT hosted the “European Central Banks Basketball Tournament” on 17-21 October 2018 in Antalya. A total of 107 sportspersons representing Estonia, Belgium, Slovenia, Spain, Romania, Greece, the ECB, the BIS and the CBRT participated in the event.

The CBRT teams also took part in Ankara Interinstitutional Basketball, Football and Table Tennis tournaments, organized by Ankara-based institutions and companies.

An astroturf football tournament was organized in November and December with the participation of the CBRT Head Office and Ankara Branch employees.

The 12th round of the CBRT-organized traditional “Interbank Chess Tournament,” which hosts participants from resident banks in Turkey, was held on 8 December 2018 in Istanbul.

Within the scope of the CBRT’s initiative to reward staff members’ children for outstanding achievements in the fields of education, sports, art or culture to strengthen the sense of belonging in the workplace, Governor Murat Çetinkaya welcomed those children with their staff member parents in his office and presented them with awards and plaques. Additionally, as a part of the activities of 23 April National Sovereignty and Children’s Day, the CBRT took part in a number of events including a painting exhibition featuring paintings of a group of primary school students from Ankara in addition to the paintings of staff members’ children.

2,534 artists The international photography contest on “Economy and Crafts” attracted a total of 8,891 photographs by 2,534 photography artists from 75 countries.

Economy and Crafts

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The Financial Support Program for Academic Studies, which has been in place since 2006 to support academic and/or policy-making conferences in the fields of economics and finance, along with other academic and policy-making studies organized in and outside the country, continued in 2018. In this scope, financial support was provided to 32 academic programs that had applied for it.

Founded by the contributions of the CBRT and the Bank of Greece after the 1999 earthquake, the Central Bank Derince Anatolian High School, which had opened its doors to students in the 2001-2002 academic year, had its 17th graduation ceremony on 25 May 2018. During the ceremony, the highest ranking students were awarded with plaques and various presents. The ceremony was attended by CBRT officials, along with provincial dignitaries and students’ families. Since the 2002, the CBRT has been awarding scholarships to graduates of this high school who have enrolled in a university and who satisfy specific criteria. As of 2018, the number of such scholarship recipients reached 104. Additionally, as a part of the financial assistance for educational purposes, the CBRT donated a photocopier, projection machine, air conditioner and various supplies for sports activities with a view to improving the quality of education.

In the context of corporate social responsibility activities, the CBRT donated 4,600 furniture items (desks, chairs, and computers) to 63 public institutions.

2.15 Corporate Social Responsibility Activities

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The CBRT’s steps towards a corporate transformation, which had started in 2017, accelerated in 2018. The corporate transformation program aims to make the CBRT an exemplary model both in Turkey and abroad as a pioneer in becoming a central bank of the future by adopting leading global standards and by being open to continuous development. It also aims to ensure that the CBRT contributes strongly to the country’s economic stability and lasting growth objectives.

The main focuses of the corporate transformation were enhancement of organizational productivity, more effective and simpler processes, human resources practices that are of global standards and supportive of development, focus on main duties and revision of the corporate culture in such a way as to support its new perspective.

In this context, the new organizational structure of the CBRT that will enhance its efficiency took effect on 1 March 2018 with an aim to simplify the organization with centralized processes, equip it with a structure based on productivity and to align it with strategies and international best practices.

Work processes were redesigned with involvement of employees, the areas requiring further improvement were identified and IT-related solutions for department-specific tasks were determined. The topics discussed during the process have already started to bear concrete outcomes.

Studies related to the new system of career management were completed. Accordingly, the CBRT was structured in a way that attaches importance to developing human resources which is based on international best practices and expertise and which is plain and understandable.

As a part of project management and monitoring activities, initiatives were designed to contribute to corporate development and encourage joint works by strengthening communication with internal and external stakeholders. The initiatives related to career management, two-way communication, risk management, payment systems, support services and process management were implemented satisfactorily by end-2018. Of the initiatives that are in the project phase, significant outcomes have been derived from those in the fields of monitoring and reporting financial transactions, conducting issue transactions at higher standards and benefiting from information technologies in a more effective manner. The CBRT has started to benefit from these outcomes in the conduct of its operations. Besides, the CBRT has also began and progressed in works related to common accounting based on a system which enables execution of payment and accrual procedures as well as recording and monitoring of accounts within the CBRT to common standards by using leading technologies.

2.16 Corporate Transformation Activities

The new career management studies were completed. Accordingly, the CBRT was structured in a way that attaches importance to developing human resources which is based on international best practices and expertise and which is plain and understandable.

New Career Management Studies

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Part 3 Financial StatementsCentral Bank of the Republic of Turkey Annual Report 2018

PART 3 FINANCIAL STATEMENTS

Photograph: Hakan Çöplü - The Saddlemaker

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Part 3 Financial Statements Central Bank of the Republic of Turkey Annual Report 2018

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ASSETSExplanation

No. Turkish Lira Foreign

Currency Total1. Gold 3.4.2.1 - 105,904,019,148 105,904,019,148

1.1 International Standard (Net Gram) 488,531,099.25 - 105,904,019,148 105,904,019,148

2. Foreign Banknotes 3.4.2.2 - 18,069,286,283 18,069,286,2833. Foreign Correspondents 3.4.2.3 - 364,548,310,930 364,548,310,930

3.1 FX Securities - 129,717,482,052 129,717,482,0523.2 Deposits - 49,324,206,589 49,324,206,5893.3 Other - 185,506,622,289 185,506,622,289

4. Reserve Tranche Position 3.4.2.4 - 825,727,273 825,727,2735. Securities Portfolio 3.4.2.5 13,703,784,910 - 13,703,784,910

5.1 Government Securities 13,372,059,760 - 13,372,059,7605.2 Other 331,725,150 - 331,725,150

6. Lending Related to Monetary Policy Operations 3.4.2.6 109,297,097,563 - 109,297,097,563

6.1 Open Market Operations 34,940,725,173 - 34,940,725,1736.2 Interbank Operations 74,356,372,390 - 74,356,372,390

7. Domestic Banks 3.4.2.7 - 6,230,499,299 6,230,499,2998. Credits 3.4.2.8 - 80,982,290,104 80,982,290,104

8.1 Domestic Credits - 80,934,618,898 80,934,618,8988.1.1 Rediscount Credits - 80,934,618,898 80,934,618,8988.1.2 Other Credits - - -

8.2 Foreign Credits - 47,671,207 47,671,2079. Share Participations 3.4.2.9 - 1,468,826,671 1,468,826,67110. Treasury Liabilities Due to SDR Allocation 3.4.2.4 - 7,844,169,143 7,844,169,14311. Fixed Assets (Net) 3.4.2.10 541,978,591 - 541,978,59112. Claims Under Legal Proceedings (Net) 3.4.2.8 - 8,188,811,020 8,188,811,020

12.1 Claims Under Legal Proceedings - 8,188,811,020 8,188,811,02012.2 Provisions for Claims Under Legal Proceedings (-) -8,188,811,020 - -8,188,811,020

13. Other Assets 3.4.2.11 10,706,277,270 1,377,531,460 12,083,808,73013.1 Gold Non-International Standard (Net Gram) 3,177,797.62 3.4.2.1 688,884,578 - 688,884,57813.2 Coins 83,669,894 - 83,669,89413.3 Income Accruals 68,490,602 - 68,490,60213.4 Other 9,865,232,196 1,377,531,460 11,242,763,656

TOTAL ASSETS 126,060,327,314 595,439,471,330 721,499,798,644

3.1 Balance Sheet as of 31 December 2018

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LIABILITIESExplanation

No. Turkish Lira Foreign

Currency Total1. Currency Issued 3.4.2.12 132,261,722,385 - 132,261,722,3852. Liabilities Related to Monetary Policy Operations 3.4.2.6 13,597,425,610 - 13,597,425,610

2.1 Open Market Operations - - -2.2 Interbank Operations 7,306,262,137 - 7,306,262,1372.3 Liquidity Bills - - -2.4 Other 6,291,163,473 - 6,291,163,473

3. Deposits 3.4.2.13 77,433,284,380 334,846,389,978 412,279,674,3583.1 Public Sector 17,493,776,155 22,097,911,834 39,591,687,989

3.1.1 Treasury, General and Special Budget Administrations 17,491,286,956 22,092,342,608 39,583,629,5643.1.2 Other 2,489,199 5,569,226 8,058,425

3.2. Banking Sector 59,329,230,568 309,251,672,318 368,580,902,8863.2.1 Domestic Banks 39,012,379,310 150,570,781,535 189,583,160,844

3.2.1.1 Cash 39,012,379,310 123,455,498,935 162,467,878,2443.2.1.2 Collateral - 27,115,282,600 27,115,282,600

3.2.1.2.1 Cash - 27,115,282,600 27,115,282,6003.2.1.2.2 Gold (Net Gram) - - - -

3.2.2 Foreign Banks 20,316,851,259 - 20,316,851,2593.2.3 Required Reserves in Blocked Accounts - 158,680,890,783 158,680,890,783

3.2.3.1 Cash - 107,724,618,540 107,724,618,5403.2.3.2 Gold (Net Gram) 235,059,291.35 3.4.2.1 - 50,956,272,243 50,956,272,243

3.2.4 Other - - -3.3 Other Deposits 610,277,657 3,496,805,826 4,107,083,482

3.3.1 FX Deposits by Citizens Abroad - 2,396,693,504 2,396,693,5043.3.2 International Institutions 91,036,932 - 91,036,9323.3.3 Extrabudgetary Funds 212,302,894 36,037 212,338,9313.3.4 Other 306,937,831 1,100,076,285 1,407,014,115

4. Foreign Banks 3.4.2.3 - 10,614,051,729 10,614,051,7295. Reserve Tranche Means 3.4.2.4 - 825,727,273 825,727,2736. SDR Allocation 3.4.2.4 - 7,844,169,143 7,844,169,1437. Tax Obligation 3.4.2.14 10,807,347,617 - 10,807,347,617

7.1 Taxes Payable 10,776,873,207 - 10,776,873,2077.2 Deferred Tax Liabilities 30,474,410 - 30,474,410

8. Provisions 3.4.2.15 416,661,807 - 416,661,8079. Capital and Reserves 3.4.2.16 27,602,160,432 - 27,602,160,432

9.1 Paid-in Capital 25,000 - 25,0009.2 Inflation Adjustments for Capital 46,208,524 - 46,208,5249.3 Reserves 27,555,926,908 - 27,555,926,908

10. Revaluation Account 3.4.2.17 45,004,664,079 - 45,004,664,07911. Profit of the Period 3.4.2.20 56,279,555,434 - 56,279,555,43412. Other Liabilities 3.4.2.18 3,043,262,968 923,375,810 3,966,638,778

12.1 Treasury Gold (Net Gram) 527,329.35 3.4.2.1 74,913,854 39,400,869 114,314,72412.2 Letters of Credit - 115,917,447 115,917,44712.3 Expense Accruals 49,467,737 - 49,467,73712.4 Other 2,918,881,376 768,057,494 3,686,938,870

TOTAL LIABILITIES 366,446,084.711 355,053,713,933 721,499,798,644REGULATING ACCOUNTS 3.4.2.19 1,497,251,202,204

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3.2 Balance Sheets as of 31 December 2018 and 2017

ASSETS Explanation No. 2018 20171. Gold 3.4.2.1 105,904,019,148 88,778,169,804

1.1 International Standard 105,904,019,148 88,778,169,8042. Foreign Banknotes 3.4.2.2 18,069,286,283 10,581,358,4663. Foreign Correspondents 3.4.2.3 364,548,310,930 306,351,078,099

3.1 FX Securities 129,717,482,052 251,841,977,1063.2 Deposits 49,324,206,589 21,989,215,5543.3 Other 185,506,622,289 32,519,885,439

4. Reserve Tranche Position 3.4.2.4 825,727,273 606,030,2955. Securities Portfolio 3.4.2.5 13,703,784,910 14,531,545,390

5.1 Government Securities 13,372,059,760 14,531,545,3905.2 Other 331,725,150 -

6. Lending Related to Monetary Policy Operations 3.4.2.6 109,297,097,563 137,553,171,4776.1 Open Market Operations 34,940,725,173 34,295,896,4426.2 Interbank Operations 74,356,372,390 103,257,275,035

7. Domestic Banks 3.4.2.7 6,230,499,299 19,467,018,3988. Credits 3.4.2.8 80,982,290,104 47,714,675,890

8.1 Domestic Credits 80,934,618,898 47,680,497,1338.1.1 Rediscount Credits 80,934,618,898 47,680,497,1338.1.2 Other Credits - -

8.2 Foreign Credits 47,671,207 34,178,7579. Share Participations 3.4.2.9 1,468,826,671 1,064,813,13010. Treasury Liabilities Due to SDR Allocation 3.4.2.4 7,844,169,143 5,757,111,69811. Fixed Assets (Net) 3.4.2.10 541,978,591 324,862,26512. Claims under Legal Proceedings (Net) 3.4.2.8 - -

12.1 Claims under Legal Proceedings 8,188,811,020 5,843,448,37312.2 Provisions for Claims under Legal Proceedings (-) -8,188,811,020 5,843,448,373

13. Other Assets 3.4.2.11 12,083,808,730 4,240,648,51213.1 Gold Non-International Standard 3.4.2.1 688,884,578 499,631,33213.2 Coins 83,669,894 61,491,59013.3 Income Accruals 68,490,602 60,174,80013.4 Other 11,242,763,656 3,619,350,789

TOTAL ASSETS 721,499,798,644 636,970,483,424

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LIABILITIES Explanation No. 2018 20171. Currency Issued 3.4.2.12 132,261,722,385 131,457,662,3822. Liabilities Related to Monetary Policy Operations 3.4.2.6 13,597,425,610 19,808,748,338

2.1 Open Market Operations - -2.2 Interbank Operations 7,306,262,137 77,346,6972.3 Liquidity Bills - -2.4 Other 6,291,163,473 19,731,401,641

3. Deposits 3.4.2.13 412,279,674,358 377,768,522,2233.1 Public Sector 39,591,687,989 49,361,624,785

3.1.1 Treasury, General and Special Budget Administrations 39,583,629,564 49,351,415,5663.1.2 Other 8,058,425 10,209,219

3.2. Banking Sector 368,580,902,886 323,504,239,6343.2.1 Domestic Banks 189,583,160,844 94,825,686,100

3.2.1.1 Cash 162,467,878,244 -3.2.1.2 Collateral 27,115,282,600 -

3.2.1.2.1 Cash 27,115,282,600 -3.2.1.2.2 Gold (Net Gram) - -

3.2.2 Foreign Banks 20,316,851,259 2,429,961,8053.2.3 Required Reserves in Blocked Accounts 158,680,890,783 226,247,656,863

3.2.3.1 Cash 107,724,618,540 169,214,107,4153.2.3.2 Gold 3.4.2.1 50,956,272,243 57,033,549,448

3.2.4 Other - 934,8663.3 Other Deposits 4,107,083,482 4,902,657,804

3.3.1 FX Deposits by Citizens Abroad 2,396,693,504 2,508,008,1443.3.2 International Institutions 91,036,932 70,634,5923.3.3 Extrabudgetary Funds 212,338,931 242,833,5783.3.4 Other 1,407,014,115 2,081,181,490

4. Foreign Banks 3.4.2.3 10,614,051,729 2,842,3995. Reserve Tranche Means 3.4.2.4 825,727,273 606,030,2956. SDR Allocation 3.4.2.4 7,844,169,143 5,757,111,6987. Tax Obligation 3.4.2.14 10,807,347,617 3,256,768,727

7.1 Taxes Payable 10,776,873,207 3,242,852,0337.2 Deferred Tax Liabilities 30,474,410 13,916,694

8. Provisions 3.4.2.15 416,661,807 386,450,6469. Capital and Reserves 3.4.2.16 27,602,160,432 21,587,173,355

9.1 Paid-in Capital 25,000 25,0009.2 Inflation Adjustments for Capital 46,208,524 46,208,5249.3 Reserves 27,555,926,908 21,540,939,831

10. Revaluation Account 3.4.2.17 45,004,664,079 55,296,111,08311. Profit of the Period 3.4.2.20 56,279,555,434 18,383,903,38912. Other Liabilities 3.4.2.18 3,966,638,778 2,659,158,889

12.1 Treasury Gold 3.4.2.1 114,314,724 441,776,04812.2 Letters of Credit 115,917,447 274,758,67412.3 Expense Accruals 49,467,737 54,565,67212.4 Other 3,686,938,870 1,888,058,495

TOTAL LIABILITIES 721,499,798,644 636,970,483,424REGULATING ACCOUNTS 3.4.2.19 1,497,251,202,204 1,228,964,474,757

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3.3 Profit and Loss Statements for 2018 and 2017

Explanation No. 2018 2017Interest Income 3.4.2.20 30,135,305,125 17,060,635,721Interest Expense 3.4.2.20 -12,302,501,417 -6,924,814,084Net Interest Income/Expense 17,832,803,707 10,135,821,636Fee and Commission Income 3.4.2.20 713,448,983 610,351,177Fee and Commission Expense 3.4.2.20 -37,264,289 -15,822,581Net Fee and Commission Income/Expense 676,184,695 594,528,596Non-Interest Income 3.4.2.20 75,941,945,672 14,697,521,887Non-Interest Expense 3.4.2.20 -27,569,466,882 -3,941,452,688Net Non-Interest Income/Expense 48,372,478,791 10,756,069,199Net Profit/Loss Before Tax 66,881,467,192 21,486,419,431Tax Expense -10,601,911,759 -3,102,516,042Tax Provision -10,610,547,065 -3,091,367,708Deferred Tax Income/Expense 3.4.2.14 8,635,306 -11,148,334Net Profit/Loss of the Period 56,279,555,434 18,383,903,389

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3.4 Explanations

The CBRT prepares its books of account in accordance with the Tax Legislation and the CBRT Law No. 1211 and prepares its statutory financial statements in accordance with the Turkish Commercial Code (TCC) and the CBRT Law No. 1211.

Periodicity, full disclosure, prudence, social responsibility, economic entity, going concern, monetary unit, historical cost, neutrality and documentation, consistency, substance over form, and materiality principles, which are the underlying assumptions of accounting, constitute the basis of the CBRT’s accounting practices.

Foreign currency transactions of the CBRT are converted to Turkish lira at the exchange rates prevailing on transaction dates. During the preparation of financial statements, foreign currency-denominated assets and liabilities are converted to Turkish lira using the FX and foreign currency buying rates of the CBRT applicable on the balance sheet date.

Pursuant to Article 61 of the CBRT Law No.1211, the unrealized gains and losses arising from the revaluation of gold and foreign currency due to changes in the value of the Turkish currency against foreign currencies are monitored in the “Revaluation Account” item in the assets and liabilities of the CBRT’s balance sheet. In the event of realization, gains or losses are reflected in the profit and loss statement.

The financial statements are presented in Turkish lira.

3.4.1.1 Gold Reserves

The CBRT’s gold reserves consist of international and non-international standard gold held at CBRT vaults, foreign banks and BIST. As a part of gold reserve management, the CBRT can execute transactions such as direct purchases and sales, gold custody account, term gold deposit transactions, FX swaps against gold and gold swaps against FX, location swaps, physical transportation of gold and etc.

Gold deposited by banks and financing companies for maintenance of required reserves is monitored at banks abroad and the BIST.

Gold is initially recognized at prices prevailing on recognition date, and measured at fair value in the following periods. Fair value is calculated based on the gold price quoted at 10.30 a.m in the London Bullion Market on the last business day of the respective week and month and using 1 ounce of gold = 31.1035 grams, and is reported on the balance sheet as converted daily to Turkish lira from these revalued amounts. Fair value differences arising from both price and exchange rate difference are recognized as unrealized gains and losses in the “Revaluation Account” as per Article 61 of the CBRT Law No. 1211.

3.4.1.2 Financial Assets and Liabilities

a) Financial Assets at Fair Value through Profit or Loss

Financial assets at fair value through profit or loss are securities in Turkish lira and foreign currency held for the purpose of liquidity management and reserve management.

Pursuant to Articles 52 (regarding open market operations) and 53 (regarding operations on gold and foreign exchange) of the CBRT Law No. 1211, securities purchased by the CBRT on its own account are classified in this group. After initial recognition, financial assets at fair value through profit or loss are revalued at their fair values at month ends, and gains and losses arising from revaluation are transferred to profit and loss accounts. The differences between acquisition costs and fair values of these financial assets are reflected in the “3. Foreign Correspondents” and “5. Securities Portfolio” items on the balance sheet.

3.4.1 Basis of Presentation of the Financial Statements

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Fair value is calculated based on the weighted average prices that occur in the BIST for transactions with the same value date. In absence of these prices, the prices of related securities published in the Official Gazette by the CBRT on a daily basis are used for fair value calculation. Foreign currency securities are valued at their fair value using the closing prices in related international markets at month ends.

Interest earned during the holding period of the financial assets at fair value through profit or loss is shown in interest income.

b) Loans

Loans extended by the CBRT are recognized when cash is advanced to borrowers. Loans are measured at amortized cost using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that discounts estimated future cash flows through the expected life of the financial asset, or, where appropriate, through a shorter period, exactly to the net present value of the financial asset.

c) Participation Shares

These are initially recognized at their acquisition costs. Subsequent to the initial recognition, fair values are determined based on market prices or other valuation techniques. Unrealized gains and losses arising from changes in the fair value are monitored in “12. Other Liabilities”. Dividends related to participation shares are reflected in the profit and loss statement in the period when the right to receive dividends is established.

d) Repurchase Transactions

Repurchase transactions of Turkish lira securities are undertaken within the scope of the open market operations of the CBRT. Repurchase transactions are recognized as collateralized loans. While the cash receivables are shown in “6. Lending Related to Monetary Policy Operations / 6.1 Open Market Operations” item on the asset side in the amount lent on the transaction date, securities received as collateral are monitored in regulating accounts. Interest received from banks is accrued at month ends using the effective interest method. On the maturity date, the interest income arising from the transaction is reflected in the profit and loss statement.

e) Impairment of Financial Assets

For financial assets other than those at fair value through profit or loss, the expected credit impairment model is used. Calculation of the expected credit loss is based on the transition matrix data published each year by CARs. The rate of loss given default is taken as 45% as suggested by Basel regulations. The expected credit impairment is calculated by using the amount in default, the probability of default and the rate of loss given default.

f) Derecognition of Financial Assets

The CBRT derecognizes an asset when the rights arising from the contract on the cash flow of the financial asset expire or when all risks and rewards arising from the acquisition of this asset are transferred to another party.

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g) Financial Liabilities at Fair Value through Profit or Loss

The liquidity bills, which are issued by the CBRT pursuant to Article 52 of the CBRT Law No. 1211 with an aim to effectively regulate the money supply and liquidity in the economy within the framework of monetary policy targets, have maturities no longer than 91 days and are tradable in the secondary markets on CBRT’s own account and behalf within the scope of open market operations, are classified in this group. The CBRT recognizes liquidity bills at the issuing amount and revalues them at the end of each month, at their fair value according to the prices announced in the Official Gazette on a daily basis. The differences between the issuing amounts and the fair values are reflected in the profit and loss statement. As of the balance sheet date, there are no liquidity bills issued by the CBRT.

h) Other Financial Liabilities

Other financial liabilities are recognized at amortized cost with interest expense calculated on an effective interest rate.

i) Reverse Repurchase Transactions

Reverse repurchase transactions are recognized as collateralized deposits. While the securities lent as collateral are shown in “5. Securities” in the assets of the balance sheet, cash debts are monitored in “2. Liabilities Related to Monetary Policy Operations / 2.1 Open Market Operations” item in the liabilities as the amount received on the transaction date. The interest paid to the banks is accrued at month ends using the effective interest method. The interest expense paid for the transaction on the maturity date is reflected on the profit and loss statement.

j) Foreign Exchange Deposits Against Turkish Lira Deposits Transactions

Foreign exchange deposits given are monitored in “7. Domestic Banks” on the asset side and TL deposits received are monitored in “2. Liabilities Related to Monetary Policy Operations / 2.4 Other” on the liability side. Interest amount collected from foreign exchange deposits and paid to TL deposits are accrued at month ends using the effective interest method. The interest income and interest expense arising from these transactions on the maturity date are recorded in the profit and loss statement.

k) TL-Settled Forward Foreign Exchange Sales

At value date, TL receivables and foreign exchange commitments are recognized under the regulating accounts. At month ends, gains and losses are monitored in “12. Other Liabilities / 12.4 Other” on the liability side and “15. Other Assets / 15.4 Other” on the asset side, respectively. TL payments/collections due to the exchange rate difference from transactions on the maturity date are reflected in the profit and loss statement.

Regarding TL-settled forward foreign exchange purchase and sale transactions at the BIST Derivatives Market (VIOP), gains and losses are reflected in the profit and loss statement on a daily basis.

l) Currency Swaps

Foreign currency payables and TL receivables due to currency swap agreements are recognized under the regulating accounts at value date and monitored in “3. Foreign Correspondents / 3.3. Other” on the asset side and “3. Deposits / 3.2 Banking Sector / 3.2.2 Foreign Banks” on the liability side, respectively. Interest collected/paid for the usages within swap agreement is accrued at month ends using the effective interest method. Interest collected/paid on maturity is recorded in the profit and loss statement.

m) Swap Transactions

FX sales/purchases related to swap transactions against TL/FX are conducted at value date. TL payables/receivables are recognized under the regulating accounts at the value date. At month ends, gains are monitored in “12. Other Liabilities/ 12.4 Other” item, whereas losses are monitored in “Other Assets/15.4 Other” item. Interest collected and paid is accrued at month ends by using effective interest method. Amounts indicating gains/losses and interest arising from transactions on the maturity date are reflected in the profit and loss statement.

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3.4.1.3 Income and Expense

a) Interest Income/Expense

As required by the periodicity principle, income and expense are accrued for the interest amounts of undue receivables and payables at month ends, and income and expense accruals are recognized for due receivables and payables whose collections or payments are going to occur in the next period.

b) Fee and Commission Income and Expense

The fee and commission income and expense, which the CBRT pays or receives as a result of the transactions with commercial banks, the Treasury, public administrations within the scope of general budget, other individuals and institutions, are recognized as income or expense in the period of payment or receipt. Income and expense accruals are recognized for payments or collections that are going to occur in the next period.

3.4.1.4 Fixed Assets

Fixed assets consist of land, buildings and additional expenses as a part of buildings’ cost, furniture and fixtures, and software products. While the land in the balance sheet of the CBRT is carried at acquisition cost; buildings, furniture and fixtures, and software are carried at cost minus accumulated depreciation in the balance sheet. The difference between the sale proceeds arising from the disposal of fixed assets and the net carrying value of the asset is recognized in the profit and loss statement. Depreciation of the fixed assets, other than land, is calculated and reflected in financial statements in accordance with their useful life, specified in the Tax Procedure Law General Communiqués using the prorated depreciation method.

3.4.1.5 Currency Issued

According to the CBRT Law No. 1211, the CBRT has the exclusive privilege of issuing banknotes. The amount of banknotes issued is shown under “1. Currency Issued” item on the balance sheet of CBRT. The CBRT can replace the banknotes in circulation with new ones when necessary. In financial statements, banknotes in circulation are presented with their nominal values.

Stocks of semi-finished banknotes printed at the CBRT’s banknote printing plant are monitored at cost in “15. Other Assets”. Expenses associated with banknotes are initially capitalized and are charged to the profit and loss statement upon transfer of banknotes to the auxiliary storage of the CBRT. Costs of finished and semi-finished banknotes include direct costs, depreciation costs, staff costs, transportation costs and other printing costs.

3.4.1.6 Provisions

According to Article 59 of the CBRT Law No. 1211, provisions, the amounts to be deemed appropriate by the Board, may be set aside from the gross annual profit of the Bank in order to cover certain risks which may occur in the following years due to the operations exclusive to the Bank.

3.4.1.7 Employee Benefits

Retirement pay and employee termination benefits are paid on the retirement of employees or in case of layoffs. The amount to be paid is calculated based on the title and tenure of the employee and in accordance with related laws.

Retirement pay and employee termination benefits obligation are calculated according to the net present value of obligations that are expected to arise due to retirement of employees, and are reflected in financial statements.

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3.4.1.8 Taxes

a) Current Taxes

The CBRT, established as a “joint stock company” as per Article 1 of the CBRT Law No. 1211, is a corporate taxpayer. It is responsible for withholding tax on wages, outsourcing payments, interest on deposits, etc. as per Article 94 of the Income Tax Law No. 193, and on the payments made to firms subject to limited tax liability except for commercial, agricultural and other earnings; and on payments made for the transfer or sale of intangible rights as per Article 30 of the Corporate Income Tax Law No. 5520.

The CBRT is a taxpayer of banking and insurance transactions tax.

Revaluation gains from assets and liabilities that are subject to Article 61 of the CBRT Law No. 1211 are not considered as a profit item for the year in which the revaluation is applied and also not taken as an income item in the calculation of corporate tax base. Revaluation losses from assets and liabilities are not considered as an expense for the year in which the revaluation is applied and also not taken as a loss item in the computation of corporate tax base.

The corporate tax for the current period is reflected as expense in the profit and loss statement. Tax-related adjustments during the current reporting period are booked as of the date on which they are made.

b) Deferred Taxes

Deferred tax assets and liabilities arise from the tax effect of the temporary differences between the amounts of assets and liabilities in the financial statements and their book values based on the CBRT Law and tax laws. The deferred tax asset is reflected in the assets and the deferred tax liability is reflected in the liabilities on the balance sheet.

Tax expense of current year includes the related period’s corporate tax and the change in deferred tax income.

3.4.1.9 Comparative Information and Adjustment of the Financial Statements of the Preceding Year

The CBRT’s financial statements for the current year and the previous year are presented together to allow comparison of the financial position. If necessary, the comparative information is reclassified and any significant differences are explained to be compatible with the presentation of the current financial statements.

3.4.1.10 Custody Operations

Custody assets held by the CBRT on behalf of individuals and financial institutions are monitored in regulating accounts.

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3.4.2.1 Gold

Gold holdings are composed of 488,531,099.25 net grams of gold in international standards equivalent to TRY 105,904,019,148 and 3,177,797.62 net grams of gold in non-international standards equivalent to TRY 688,884,578. While some part of the gold of international standards belongs to the Treasury and CBRT, the rest is placed with the CBRT by banks and financing companies to satisfy their reserve requirements. Gold holdings of international standards are stored in the vaults of CBRT, held with the BIST and foreign correspondents.

Table 3.4.2.1.1: Gold

2018 2017Net Gram TRY Net Gram TRY

International standards 488,531,099 105,904,019,148 564,654,454 88,778,169,804Owned by CBRT 253,290,053 54,908,346,038 199,440,583 31,357,177,515

At BoE 5,939,153 1,287,492,602 109,759,799 17,257,057,024At BIS - - 18,736,294 2,945,826,226At CBRT 33,670,645 7,299,139,491 33,670,645 5,293,889,429At BIST 213,680,255 46,321,713,945 37,273,844 5,860,404,835

Reserve requirements of the banks 234,404,638 50,814,356,190 361,444,985 56,828,426,762At BoE 90,013,832 19,513,244,093 264,341,426 41,561,255,421At BIS 144,390,806 31,301,112,098 97,103,560 15,267,171,341

Reserve requirements of the financing companies 654,653 141,916,050 1,304,639 205,122,687

At BoE 654,653 141,916,050 1,304,639 205,122,687Owned by the Treasury 181,755 39,400,869 2,464,247 387,442,840

At BIST 181,755 39,400,869 2,464,247 387,442,840Non-international standards 3,177,798 688,884,578 3,177,798 499,631,332

Owned by CBRT 2,832,113 613,946,990 2,832,113 445,280,911Collection (Owned by CBRT) 109 23,733 109 17,213Owned by Treasury 345,575 74,913,854 345,575 54,333,208

Note: Gold holdings are valued based on 1 ounce of gold = 31.1035 grams using the price 1,281.65 USD/Ounce (2017: 1,296.50) and USD buying rate of TRY 5.2609 as of 31 December 2018 (2017: TRY 3.7719). Accordingly, the price of 1 net gram of gold is (1,281.65 x 5.2609) / 31.1035 = TRY 216.78.

Gold holdings of international standards are held by the CBRT as part of foreign currency reserves and they account for 22.12% (2017: 21.85%) of total foreign currency reserves.

The gold deposited by banks and financing companies for required reserves, which amounts to 235,059,291.35 net grams equivalent to TRY 50,956,272,240, and the gold owned by the Treasury and kept at the BIST, which amounts to 181,755.67 net grams equivalent to TRY 39,400,869 are also followed under this item.

3.4.2 Explanations Related to Financial Statement Items

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Some part of gold holdings of non-international standards belongs to the CBRT and the rest belongs to the Treasury. Gold holdings of non-international standards are stored in the vaults of the Head Office and recognized in the assets of the balance sheet under “15. Other Assets”. The Treasury’s 345,574.68 net grams of gold amounts to TRY 74,913,854 and is reported in liabilities side of the balance sheet under “12. Other Liabilities/12.1 Treasury Gold”.

3.4.2.2 Foreign Banknotes

As of the end of 2018, the Turkish lira equivalent of foreign banknotes kept in the vaults of the CBRT branches is TRY 18,069,286,283.

Table 3.4.2.2.1: Foreign Banknotes

2018 2017Foreign banknotes 18,069,286,283 10,581,358,466

3.4.2.3 Foreign Correspondents

“3. Foreign Correspondents”, which represents the main part of the FX reserves of CBRT and presented in the assets of the balance sheet, consists of FX securities carried at fair value, deposit accounts in foreign correspondents, and current accounts.

Table 3.4.2.3.1: Foreign Correspondents (Assets)

2018 2017TRY USD Equivalent TRY USD Equivalent

FX Securities 129,717,482,052 24,656,899,400 251,841,977,106 66,767,935,816Deposits 49,324,206,589 9,375,621,394 21,989,215,554 5,829,745,103Other 185,506,622,289 35,261,385,369 32,519,885,439 8,621,619,194

Demand deposits 178,435,328,338 33,917,262,890 27,326,772,506 7,244,829,530SDR holding account 7.070.035.653 1,343,883,300 5,190,498,204 1,376,096,451Other 1,258,297 239,179 2,614,729 693,213

TOTAL 364,548,310,930 69,293,906,162 306,351,078,099 81,219,300,114

Balances of “4. Foreign Banks” in the liabilities of the balance sheet as of the end of 2018 and 2017 are presented below.

Table 3.4.2.3.2: Foreign Banks (Liabilities)

2018 2017TRY USD Equivalent TRY USD Equivalent

Foreign Banks 10,614,051,729 2,017,535,351 2,842,399 753,572

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3.4.2.4 Balances Arising from Turkey’s Membership in the International Monetary Fund

Within the framework of the financial relations arising from Turkey’s membership in the IMF, Turkey’s quota paid in gold and foreign currency is represented on the balance sheet under “4. Reserve Tranche Position” under assets and “5. Reserve Tranche Means” under liabilities. SDR 37,750,000 part of this total SDR 112,775,000 was paid in gold. Turkey’s IMF quota reached SDR 4,658,6 million by 18 February 2016.

Table 3.4.2.4.1: Balances Arising from Turkey’s Membership in the IMF

2018 2017TRY SDR TRY SDR

AssetsReserve tranche position 825,727,273 112,775,000 606,030,295 112,775,000Treasury Liabilities due to SDR allocation 7,844,169,143 1,071,329,729 5,757,111,698 1,071,329,729

LiabilitiesReserve tranche means 825,727,273 112,775,000 606,030,295 112,775,000SDR allocation 7,844,169,143 1,071,329,729 5,757,111,698 1,071,329,729

SDR 112,307,000, which was allocated to Turkey by the IMF and used by the Treasury, and the General and Special SDR Allocation at the amount of SDR 959,022,729 are presented under “10. Treasury Liabilities due to SDR Allocations” under assets, and “6. SDR Allocation” under liabilities.

3.4.2.5 Securities

By end-2018, the fair value of securities was TRY 13,703,784,910.

Table 3.4.2.5.1:Securities

2018 2017Cost Fair Value Cost Fair Value

Government bonds and treasury bills issued by the Ministry of Treasury and Finance 13,884,021,970 13,372,059,760 14,557,547,630 14,531,545,390Lease Certificates issued by the Ministry of Treasury and Finance Asset Leasing Company 326,810,540 331,725,150 - -TOTAL 14,210,832,510 13,703,784,910 14,557,547,630 14,531,545,390

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3.4.2.6 Lending and Liabilities Related to Monetary Policy Operations

“6. Receivables Related to Monetary Policy Operations” on the assets of the balance sheet, which represents cash receivables of the CBRT, had a balance of TRY 109,297,097,563 as of the end of 2018. The income accruals reflected in this item are TRY 100,419,439 for repurchase agreements (2017: TRY 35,896,437) and TRY 196,678,242 for Interbank Money Market operations (2017: TRY 109,575,035).

“2. Liabilities Related to Monetary Policy Operations” on the liabilities of the balance sheet, which represents cash debts of the CBRT, had a balance of TRY 13,597,425,610. The expense accruals reflected in this item are TRY 4,562,137 for Interbank Money Market operations (2017: TRY 46,697), and TRY 18,718,934 for FX deposits against TL deposits operations (2017: TRY 34,833,780).

Table 3.4.2.6.1: Lending /Liabilities Related to Monetary Policy Operations

2018 2017Assets

Lending/ Receivables Related to Monetary Policy Operations 109,297,097,563 137,553,171,477Open Market Operations 34,940,725,173 34,295,896,442Interbank Money Market Operations 74,356,372,390 103,257,275,035

LiabilitiesLiabilities Related to Monetary Policy Operations 13,597,425,610 19,808,748,338

Interbank Money Market Operations 7,306,262,137 77,346,697Other 6,291,163,473 19,731,401,641

Receivables Related to Monetary Policy Operations (Net) 95,699,671,953 117,744,423,139

3.4.2.7 Domestic Banks

“7. Domestic Banks” item represents FX deposit operations with the CBRT as counterparty, FX deposit operations intermediated by the CBRT, and foreign exchange deposits against Turkish lira deposits operations that started on 18 January 2017. As of 31 December 2018, the amount of domestic banks account is TRY 6,230,499,299 (2017: 19,467,018,398). The income rediscount reflected in this item for foreign exchange deposits against Turkish lira deposits operations was TRY 1,935,657 (2017: TRY 4,052,117).

Table 3.4.2.7.1: Domestic Banks

2018 2017FX deposits against Turkish lira deposits 6,230,499,299 19,467,018,398TOTAL 6,230,499,299 19,467,018,398

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3.4.2.8 Credits and Claims under Legal Proceedings

Domestic credits, which are extended to banks against rediscounted bills, consist of USD 6,841,369,398.55 (2017: USD 6,761,022,393), EUR 7,482,368,623.88 (2017: EUR 4,905,730,152), GBP 29,972,474 (2017: GBP 27,047,292), JPY 76,000,000 (2017: null), CNY 36,165,706 (2017: CNY 23,142,685 )equivalent to TRY 81,326,052,136 (2017: TRY 47,804,468,499). The year-end balance of domestic credits including accruals is TRY 80,934,618,898 (2017: TRY 47,680,497,133.)

Foreign credits consist of credits extended to the Central Bank of Sudan. In accordance with the Banking Agreement between the CBRT and the Central Bank of Sudan, foreign credits that were extended amount to USD 9,061,417 (2017: USD 9,061,417) equivalent to TRY 47,671,207 (2017: TRY 34,178,758)

Table 3.4.2.8.1: Credits and Claims under Legal Proceedings (TRY)

2018 2017Domestic Credits 80,934,618,898 47,680,497,133Foreign Credits 47,671,207 34,178,757Claims under Legal Proceedings (Net) - -

Claims under Legal Proceedings 8,188,811,020 5,843,448,373Provisions for Claims under Legal Proceedings -8,188,811,020 -5,843,448,373

TOTAL 80,982,290,104 47,714,675,890

NOTE: Interest accrued to the claims on the Central Bank of Iraq is USD 7,336,311 ((2017: USD 7,951,453) equivalent to TRY 36,045,032 (2017: TRY 28,975,858)

The claims on the Central Bank of Iraq are TRY 7,701,785,962 (2017: TRY 5,494,266,709) equivalent to USD 1,463,967,375 (2017 USD 1,456,631,064). The total of claims arising from the credit extended against bills for theIraq Bekhme Dam Project is TRY 487,025,058 equivalent to USD 92,574,475 (2017: USD 92,574,475).

As per Article 323 of the Tax Procedure Law No.213, a provision has been set aside for the principal and the monthly interest accrued. As the claim at the amount of TRY 8,188,811,020 has been netted with the provision, the Non-Performing Loans item had no balance as of 31.12.2018.

3.4.2.9 Share participations

The CBRT has share participations in the BIS, SWIFT (Society for Worldwide Interbank Financial Telecommunications) and the IILM (International Islamic Liquidity Management Corporation).

The share participation in the BIS, which was acquired under the scope of central banking activities, is recognized at fair value calculated as 70% of the net asset value of the BIS.

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Table 3.4.2.9.1: Share Participations

2018 2017

ParticipationNature of Business

Ownership (%) TRY

Foreign Currency

Ownership (%) TRY

Foreign Currency

BISBanking supervision services 1.43 1,415,968,835 SDR 10,000,000 1.43 1,026,925,611 SDR 10,000,000

SWIFTElectronic fund transfer services 0.007 248,836 EUR 41,280 0.007 168,518 EUR 37,320

IILMLiquidity management 13.33 52,609,000 USD 10,000,000 13.33 37,719,000 USD 10,000,000 TOTAL 1,468,826,671 1,064,813,130

Movements in share participations are shown below:

Table 3.4.2.9.2: Movement in Share Participations

2018 2017Balance on 1 January 1,064,813,130 917,955,544Fair Value changes 404,013,541 146,857,586Balance on 31 December 1,468,826,671 1,064,813,130

3.4.2.10 Fixed Assets (Net)

The CBRT’s fixed assets consist of lands, buildings, furniture and fixtures and software products.

Table 3.4.2.10.1: Movement in Fixed Assets

Land and Building

Furniture and Fixtures Software TOTAL

Net book value on 1 January 235,510,984 80,461,138 8,890,143 324,862,265Additions 148,907,027 90,438,973 35,613,647 274,959,647Disposals(net) (*) -2,771,830 -50,023 - -2,821,853Depreciation charge -4,561,543 -33,788,523 -16,671,402 -55,021,468Net book value on 31 December 377,084,638 137,061,565 27,832,388 541,978,591

(*) Disposals are shown net of accumulated depreciation.

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2018Land and Building


Book value 542,837,195 323,882,063 69,102,499 935,821,757Accumulated depreciation -165,752,557 -186,820,498 -41,270,111 -393,843,166Net book value 377,084,638 137,061,565 27,832,388 541,978,591

2017Land and Building


Book value 398,246,885 251,958,865 35,821,306 686,027,056Accumulated depreciation -162,735,901 -171,497,727 -26,931,163 -361,164,791Net book value 235,510,984 80,461,138 8,890,143 324,862,265

3.4.2.11 Other Assets

Table 3.4.2.11.1: Other Assets

2018 2017Gold in non-international standard 688,884,578 499,631,332Coins 83,669,894 61,491,590Income accruals 68,490,602 60,174,800

Charges and commissions due from the TreasuryHazine’den tahsil edilecek masraf ve komisyonlar 32,608,323 35,408,495EFT fees 20,677,860 18,508,276Other 15,204,419 6,258,029

Other 11,242,763,656 3,619,350,790Prepaid taxes to be deducted from corporate tax 7,222,981,210 2,158,794,988Income tax withholding to be deducted from corporate tax 502,021,428 141,038,934Depots 71,981,094 61,238,020Prepaid expenses 3,889,674 1,912,141Other 3,441,890,250 1,256,366,706

TOTAL 12,083,808,730 4,240,648,512

3.4.2.12 Currency Issued

Table 3.4.2.12.1: Currency Issued

2018 2017Balance on 1 January 131,457,662,382 122,959,912,798Banknotes put in circulation 48,951,300,434 50,964,983,041Banknotes withdrawn and destroyed banknotes -48,147,240,431 -42,467,233,457Banknotes expired - -Balance on 31 December 132,261,722,385 131,457,662,382

The total balance of banknotes in circulation at the end of 2018 was TRY 132,261,722,385.

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3.4.2.13 Deposits

Table 3.4.2.13.1: Deposits

2018 2017Public sector deposits 39,591,687,989 49,361,624,785Treasury, general and special budget administrations 39,583,629,564 49,351,415,566Other 8,058,425 10,209,219Banking Sector Deposits 368,580,902,886 323,504,239,634Domestic banks 189,583,160,844 94,825,686,100

Deposits of banks 27,963,987,094 10,754,658,926Cash 848,704,494 -Collaterals 27,115,282,600 -Cash 27,115,282,600 -Gold - -

Free required reserves 161,619,173,750 84,071,027,174Foreign banks 20,316,851,259 2,429,961,805Required reserves in blocked accounts 158,680,890,783 226,247,656,863

Cash 107,724,618,540 169,214,107,415Gold 50,956,272,243 57,033,549,448

Other - 934,866Other deposits 4,107,083,482 4,902,657,803Deposits by citizens abroad 2,396,693,504 2,508,008,144Deposits by international institutions 91,036,932 70,634,592

IMF 67,975,325 56,886,918Other 23,061,607 13,747,673

Extra budgetary funds 212,338,931 242,833,578Other 1,407,014,115 2,081,181,490

Financing companies 1,406,364,250 2,075,177,611Deposits by embassies 5,758 723,877Other 644,107 5,280,002

TOTAL 412,279,674,358 377,768,522,223

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3.4.2.14 Tax Liability

The CBRT is subject to corporate tax. The amount of corporate tax to be charged on taxable corporate income is calculated over the tax base generated by adding non-deductible expenses to the profit and deducting non-taxable income and allowances.

Table 3.4.2.14.1: Taxes to be Paid

2018 2017

Corporate tax 10,610,547,065 3,091,367,708

Other taxes 166,326,142 151,484,325

Obligations as a taxpayer 36,476,712 60,391,383

Obligations as withholding tax collector 129,849,430 91,092,942

TOTAL 10,776,873,207 3,242,852,033

The effective corporate tax rate in 2018 was 22% (2017: 20%). In Turkey, the advance tax is calculated and accrued on a quarterly basis. Advance corporate income tax rate applied in 2018 was 22% (2017: 20%),

For temporary differences arising from the differences in the provisions of the TCC and the tax legislation, deferred tax asset or liability are calculated over the effective corporate tax rate of 22% (2017: 20%),

The breakdown of temporary differences and the resulting deferred income tax assets / liabilities as of the end of 2018 is as follows:

Table 3.4.2.14.2: Temporary Differences and Deferred Income Tax Assets / Liabilities

2018 2017Total

Temporary Differences

Deferred Tax Assets/

Liabilities

TotalTemporary Differences

Deferred Tax Assets/

LiabilitiesTotal assets 197,167,415 43,376,831 173,713,430 34,742,686Retirement pay and employment termination benefit obligations 173,605,469 38,193,203 143,394,309 28,678,862Depreciation adjustment for fixed assets 23,561,946 5,183,628 30,319,122 6,063,824Total liabilities -1,342,749,835 -73,851,241 -973,187,611 -48,659,381Fair value adjustment of the BIS participation share -1,342,749,835 -73,851,241 -973,187,611 -48,659,381Net Assets/ Liabilities -1,145,582,419 -30,474,410 -799,474,181 -13,916,694

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Table 3.4.2.14.3: Deferred Tax Asset / Liability Movement

2018 2017

Balance on 1 January -13,916,694 4,126,958

Deferred tax related to profit and loss statement (net) 8,635,306 -11,148,334

Deferred tax related to other liability accounts -25,193,021 -6,895,319

Balance on 31 December -30,474,410 -13,916,694

3.4.2.15 Provisions

Table 3.4.2.15.1: Provisions

2018 2017

Retirement pay and employment termination benefit provisions 173,605,469 143,394,309

Insurance provision for money in transit 243,056,337 243,056,337

TOTAL 416,661,807 386,450,646

The year-end balance of the insurance provision for the Money in transit, which is set aside pursuant to Article 59 of the CBRT Law No. 1211, is TRY 243,056,337.

As per the Turkish Labor Law No. 1475 and the Pension Fund Law No. 5434, employers are obliged to pay retirement pay or employment termination benefits to their employees whose contracts have expired, and who are eligible to retire with a right to receive retirement and employment termination benefits.

Provisions for retirement pay and employment termination benefits are calculated by estimating the present value of the prospective future obligation of the CBRT arising from the retirement of its employees. Accordingly, the actuarial assumptions used in calculating total liabilities are presented below.

The principal actuarial assumption is that the maximum liability for each year of service will increase in tandem with the inflation rate. Therefore, the discount rate applied represents the expected real rate adjusted for future inflation effects. For this reason, provisions in the financial statements as of the end of 2018 have been calculated by estimating the present value of the prospective future liability arising from retiring employees.

The ceiling amount of termination benefit is revised every six months. While calculating the provision for the termination benefit obligation of the CBRT’s employees, the ceiling amount of TRY 5,434 (2017: TRY 4,732) that took effect as of 1 July 2018 was taken into account.

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The change in the retirement pay and employment termination benefit obligations is shown below:

Table 3.4.2.15.2: Change in Retirement Pay and Employment Termination Benefit Liabilities

2018 2017

Provision by 1 January 143,394,309 194,805,019

Provision set aside 32,553,264 25,060,594

Retirement Pay and Employment Termination Benefit paid -2,342,103 -76,471,304

Provision by 31 December 173,605,469 143,394,309

3.4.2.16 Capital and Reserves

The CBRT’s total capital is TRY 25,000 and it is divided into 250,000 registered shares, each with a value of TRY 0.10.

Table 3.4.2.16.1: Capital and Reserves

2018 2017

Paid-in capital 25,000 25,000

Inflation adjustment for paid-in capital 46,208,524 46,208,524

Reserves 27,555,926,908 21,540,939,831

Ordinary reserve 18,720,275,631 14,423,856,184

Extraordinary reserve 8,674,479,713 6,955,912,084

Special reserve 161,171,564 161,171,564

TOTAL 27,602,160,432 21,587,173,355

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The shareholders of the CBRT by the end of 2018 and 2017 are listed below:

Table 3.4.2.16.2: Shareholders of the CBRT

2018 2017Share (TRY) Share (%) Share (TRY) Share (%)

Ministry of Treasury and Finance 13,780 55.12 13,780 55.12T.C. Ziraat Bankası 4,806 19.22 4,806 19.22Mervak İç ve Dış Ticaret A.Ş. 1,280 5.12 1,280 5.12Türkiye Garanti Bankası 621 2.48 621 2.48Türkiye İş Bankası 582 2.33 582 2.33Türkiye Halk Bankası 277 1.11 277 1.11Yapı ve Kredi Bankası 139 0.56 139 0.56Akbank 8 0.03 8 0.03Türk Ekonomi Bankası 2 0.01 2 0.01ING Bank 5 0.02 5 0.02Other 3,500 13.99 3,500 13.99Paid-in Capital 25,000 100.00 25,000 100.00

3.4.2.17 Revaluation Account

Table 3.4.2.17.1: Revaluation

2018 2017Revaluation account 45,004,664,079 55,296,111,083

This item, which shows the unrealized gains and losses, arising from the valuation of gold, FX and banknotes, other assets and obligations in terms of foreign currency in the asset and liabilities of the CBRT due to changes in the value of the Turkish currency against the foreign currencies and changes in gold prices in international markets, had a balance of unrealized gain amounting to TRY 45,004,664,079 at the end of the year.

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3.4.2.18 Other Liabilities

Table 3.4.2.18.1: Other Liabilities

2018 2017Treasury Gold 114,314,724 441,776,048Letters of credit 115,917,447 274,758,674Expense accruals 49,467,737 54,565,672Other 3,686,938,870 1,888,058,495Difference arising from accounting policy changes 1,271,444,770 927,054,457Blocked accounts as per the decisions of tax offices and courts 5,523,264 4,083,290Amounts to be debited to foreign correspondent accounts on next year’s value date 182,045,309 141,886,200Other 2,227,924,999 815,034,548TOTAL 3,966,638,778 2,659,158,889

3.4.2.19 Regulating Accounts

Regulating accounts, which are expressed in terms of Turkish lira, FX and units, had a balance of 1,497,251,202,204 (2017: 1,228,964,474,757) at the end of 2018. The nominal value of the securities received from banks as collateral for repurchase agreements was TRY 30,326,643,778 (2017: TRY 28,241,562,517); the fair value of these securities was TRY 34,917,974,858 (2017: TRY 34,403,521,720), whereas they are shown in their nominal values under regulating accounts. The Bank’s TL-based forward foreign exchange sales during 2017 are monitored in regulating accounts as well. By 31 December 2018, these accounts had a balance of TRY 2,563,509,600 (2017: TRY 11,154,227,730 ) in receivables and USD 431,000,000 (2017: USD 2,850,000,000) in payables.

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3.4.2.20 Profit / Loss Accounts

Table 3.4.2.20.1: Profit / Loss Statement

2018 2017NET INTEREST INCOME/EXPENSE 17,832,803,707 10,135,821,636Interest Income 30,135,305,125 17,060,635,721

TL and FX securities portfolio 5,070,791,093 3,986,373,400Securities purchased under agreements to resell 11,713,015,184 3,249,405,051Interbank money market operations 11,356,862,149 8,936,681,248Credits 605,204,985 324,283,826Banks 1,389,431,714 563,892,196

Interest Expenses -12,302,501,417 -6,924,814,084FX deposits by citizens abroad -7,394 -777,415Securities sold under agreements to repurchase -18,208,996 -Interbank money market operations -381,565,836 -6,911,987Ministry of Treasury and Finance’s accounts -4,296,484,972 -2,206,889,018IMF general resource account (GRA) charges -68,391,037 -29,115,977TL required reserves -2,408,331,065 -959,265,576FX required reserves -1,802,137,545 -1,484,993,469Banks -3,327,374,573 -2,236,860,644

NET FEE AND COMMISSION INCOME/EXPENSES 676,184,695 594,528,596Fee and Commission Income 713,448,983 610,351,177

EFT transaction fees and commissions 353,690,326 297,976,360Commissions to be due from the Ministry of Treasury and Finance 237,905,409 213,806,213Commission and maintenance fees due from banks 85,646,269 84,061,635Other fund transfer fees 3,095,660 2,769,901Fees charged to banks within the context of CMS 32,663,555 11,211,275Other 447,764 525,791

Fee and commission expenses -37,264,289 -15,822,581Commission and maintenance fees paid to banks -36,318,246 -15,111,806Other -946,042 -710,775

NET NON-INTEREST INCOME/EXPENSE 48,372,478,791 10,756,069,199Non-Interest Income 75,941,945,672 14,697,521,887

Profit on purchase and sale of FX 71,655,717,880 14,585,538,948Securities portfolio trading income and increase in fair value 189,295,750 -Dividend income 11,631,728 11,141,299Other 4,085,300,314 100,841,640

Non-Interest Expenses -27,569,466,882 -3,941,452,688Loss on purchase and sale of FX -5,006,626,881 -617,107,544Securities portfolio trading loss and decrease in fair value -1,666,929,325 -1,761,301,860Provision expenses for claims under legal proceedings -2,345,362,647 -419,466,993Wages and salaries -766,355,162 -763,646,229Social security costs -93,888,834 -84,767,860Operating expenses -174,594,461 -126,729,942Banknote paper and ink expenses -151,586,286 -123,157,470Depreciation charges -55,021,468 -40,183,357Other -17,309,101,818 -5,091,433

PROFIT BEFORE TAX 66,881,467,192 21,486,419,431DEFERRED TAX INCOME 8,635,306 -11,148,334REPORTED PROFIT OF THE PERIOD 66,890,102,499 21,475,271,097

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3.4.2.21. Profit Distribution

Paragraph 5 of Article 64 of the TCC No. 6102 amended with Law No. 6335 stipulates that natural and legal persons, who are subject to the TCC, are also obliged to conform to the provisions of the Tax Procedure Law No. 213 concerning book keeping and recording time as well as the regulations made based on the powers given by Article 175 and the repeated Article 257 of the same law. According to the aforementioned paragraph, provisions of the Law No. 6102 concerning book keeping, inventory, financial statement preparation, capitalization, provisions, accounts, valuation, maintenance and submission do not impede the implementation of Law No. 213 and the related provisions of other tax laws, nor do they impede the determination of the tax base in compliance with tax laws and the preparation of related financial statements.

The profit of the CBRT for the 2018 period is TRY 66,874,731,127 and it has been stated in its accounting books kept according to the provisions of the Tax Procedure Law No. 213. Taking into account Article 60 of the CBRT Law No. 121, and the provisions of Article 64 of the TCC No. 6102 amended with Law No. 6335, distribution of the profit shall be made as follows:

Table 3.4.2.21.1: Distribution of Profit (Article 60 of Law No. 1211)

2018 2017

Reported profit of the period (TCC No. 6102) 66,890,102,499 21,475,271,097

Reporting adjustments 15,371,371 6,826,142

Profit to be distributed (Tax Procedure Law No.213) 66,874,731,127 21,482,097,239

Tax provisions (-) 10,610,547,065 3,091,367,708

Corporate income tax 10,610,547,065 3,091,367,708

Profit after tax 56,264,184,062 18,390,729,531

Other distributions (-) 18,745,588,199 6,034,188,150

1-Reserves 18,724,924,566 6,014,987,077

Ordinary reserves 13,374,946,225 4,296,419,448

Extraordinary reserves 5,349,978,340 1,718,567,629

2-Shareholders 3,000 3,000

First dividends 1,500 1,500

Second dividends 1,500 1,500

3- Bonus to the personnel (Article 60/c) 20,660,634 19,198,073

The amount to be transferred to the Ministry of Treasury and Finance 37,518,595,863 12,356,541,382

As per the decision made at the Extraordinary General Assembly Meeting of the CBRT held on 18 January 2019, an advance dividend was paid to shareholders and the paid amount will be set off during profit distribution.

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3.5 Explanations on Operating Expenses

The table below shows the distribution of operating expenses incurred for the operational activities of the Bank in the last two years on the basis of the current expenditure items in real (2003) prices.

Table 3.5.1: Distribution of Expenses (with 2003 prices)

2018 (TRY) 2017 (TRY) Change (%)

I- Personnel Expenses 236,900,240 271,801,997 -13

II- Other Expenses 48,081,091 40,599,811 18

III- Banknote Printing Expenses 41,744,932 39,455,316 6

TOTAL 326,726,263 351,857,124 -7

In 2017, while other expenses and banknote printing expenses increased, there was a decrease in personnel expenses compared to 2017.

• Staff expenses: These expenses cover salaries, fringe benefits, social security payments, social benefits, health and education expenses, travel allowances and outsourcing expenses. The number of Bank staff increased by 2% to 3,820 in 2018 from 3,745 in 2017. Compared to 2017, there was a 13% decrease in staff expenses in real terms. In 2018, the total amount of gross salaries paid to the senior management of the Bank, comprising the Board, the Executive Committee, the MPC and the Auditing Committee members was TRY 7,903,396.

• Other expenses: There was an 18% increase compared to 2017. This increase stemmed from the increase in Maintenance and Repair Expenses, Consulting and Research Expenses, Expenses of Money in Transit, Rent Expenses, Social Expenses, Taxes, Duties and Charges and Representative Office Expenses.

• Banknote printing expenses: Despite the decrease in the prices of raw materials used in printing banknotes and the decline in production, banknote printing expenses increased by 6% in 2018 due to the appreciation in exchange rates.

While performing the main duties assigned to it by the Bank’s Law such as issuing banknotes, determining the monetary policy, achieving price stability and managing FX reserves of the country and keeping up with technological developments, the Bank prepares its budget adhering to the principle of frugality in both operating expenses and also investment expenditures.

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3.6 Audit at the CBRT and Audit Reports

The activities of the CBRT, which operates as a joint stock company, are audited by both internal and external auditors in compliance with the provisions of the CBRT Law No. 1211.

Audits Conducted by the Internal Organs of the CBRT

In accordance with Article No. 15 of the CBRT Law, the General Assembly examines and resolves whether to approve the Annual Report submitted by the Board of the Bank, the report of the Auditing Committee, the CBRT’s balance sheet and the income statements. In this way, the General Assembly completes the monitoring of the activities of the Bank every year by discharging the Board of the Bank and the Auditing Committee.

On the other hand, in accordance with Article No. 24 of the CBRT Law, the Auditing Committee audits all the operations and accounts of the CBRT and submits to the General Assembly a report to be drawn up on operations and accounts of the Bank at the end of the year. With the authorization entrusted by the CBRT Law, the Auditing Committee submits its written opinions to the Board and also presents a copy thereof to the President.

According to Article No. 64 of the Main Regulation on Organization and Duties of the CBRT, the authority and responsibility for auditing the Bank’s transactions are entrusted with the Audit Department.

Article No. 64 of the Main Regulation on the Organization and Duties of the CBRT gives the authority and responsibility of auditing the Bank’s transactions to the Audit Department.

Within the scope of the authorities and duties granted by the CBRT Law No. 1211 as well as other legislation, the Audit Department has the duty and authority to conduct audits, examinations and research, and also to carry out investigations and consulting services when needed in the departments, branches and representative offices of the CBRT and also at institutions and organizations other than the Bank.

According to Article No. 6 of the “Audit Regulation of CBRT”, audits carried out can be classified into four activities: internal audit, investigation, examination and consultancy, and external audit activities.

According to Article No. 37 of the “Audit Regulation of the CBRT”, one or several of the operational, financial, compliance and information systems audits are conducted simultaneously in all departments, branches and representative offices of the CBRT.

Within the scope of the external audit function, banks and financing institutions operating in Turkey are audited to ensure that the liabilities subject to reserve requirements are calculated, the maximum and the weighted average interest rates/profit-loss participation rates are reported, variable interest products and deposits are managed in compliance with regulations related to maturities and types of instruments; that the variable interest rate housing loan contracts are lawful; the incompliance with the credit card regulations and the controls regarding reporting of credit cards, the closure of export rediscount credit accounts, credit cards and overdraft accounts, announced interest rates, actual maximum interest rates, KT (the weighted average interest rates and amounts for credits in TL) and MT (the weighted average interest rates and amounts for credits in TL) forms are in conformity with Trial Balance; and IBAN applications comply with the relevant regulations, instructions and circulars. In 2018, the Audit Department conducted external audits in 28 banks and 4 financing institutions.

3.6.1 Audit at the CBRT

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The Audit Department has a total of 58 staff and is composed of 13 chief inspectors, 5 chief auditors, 27 inspectors, 1 auditor, 1 information technologies auditor, 3 authorized assistant auditors, 2 assistant information technologies auditors, 2 assistant auditors and 4 assistant information technologies auditor.

The “Follow-up of Audit Results” activities, which are designed to monitor whether the necessary actions are taken regarding the issues in the audit reports, to inform and receive the opinions of the Board, the Auditing Committee and the Executive Committee, were held in June and December 2018.

Audits Conducted by External Parties

In accordance with Article No. 42 of the CBRT Law, the Governor submits to the President a report on the operations of the Bank and the current and future monetary policy, in April and October each year. The CBRT furnishes information regarding its operations to the Committee on Plan and Budget of the Grand National Assembly of Turkey twice a year.

In accordance with the second paragraph of Article 42 of the CBRT Law, the CBRT may assign external auditors to audit the balance sheet and the income statements of the Bank. Believing that independent external audit activities are one of the most effective instruments with respect to the transparency and accountability principles adopted by central banks operating in compliance with international standards, the CBRT first started to receive external audit services in 2000. The reports prepared at the end of the audit engagements each year are made public via the CBRT’s website.

In addition to these audits mentioned above, the Ministry of Treasury and Finance, the State Supervisory Council, the Turkish Court of Accounts, certain ministries and other authorized government agencies may conduct audits via their auditors at the CBRT on the issues related to their duties, if necessary.

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CENTRAL BANK OF THE REPUBLIC OF TURKEY JOINT STOCK COMPANY 2018 AUDITING COMMITTEE REPORT FOR THE EIGHTY-SEVENTH ACCOUNTING YEAR

The Auditing Committee has audited the activities and resulting statements of the 2018 Accounting Year of the Central Bank of the Republic of Turkey within the framework of the provisions of the related legislation, and concluded that:

1-Gold holdings, and cash, foreign exchange banknotes, coins and securities in the service and reserve vaults of the Head Office and Branches, which were subject to audit and stock-taking, are in conformity with the accounting records as well as the inventory records, and these values are kept and administered in accordance with the regulations and instructions,

2-The decisions, dissents and abstaining votes of the Board have been deliberated and no action was deemed necessary,

3-The conformity of books related to the Bank’s accounts with accounting records was examined and it was ascertained that: the records were kept timely, orderly, properly and per legislation, and that the Bank’s operations were in conformity with the Central Bank Law.

4-The trial for the legal liability lawsuit filed by the Bank continues,

5-The balance sheet dated 31.12.2018 and the Income Statement for the period between 01.01.2018-31.12.2018 are in compliance with the Turkish Commercial Code and the Central Bank Law,

6-The financial statements compiled to present the financial position of the Central Bank of the Republic of Turkey on 31.12.2018, and the results of activities relating to the same accounting year that ended on the same date are presented in an accurate, correct and clear manner pursuant to the legislation in force in Turkey and the Central Bank Law.

In conclusion, we hereby submit the “Balance Sheet” and the “Income Statement” dated 31.12.2018 for approval of the General Assembly.

Ankara, 22.02.2019

3.6.2 The Report of the Auditing Committee

Mehmet BABACANAuditing Committee Member

Zekeriya KAYAAuditing Committee Member

Mehmet KAYAAuditing Committee Member

Mehmet Murat ÖZDİLAuditing Committee Member

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3.6.3 Independent Audit Report Drawn up in Compliance with the Central Bank Law and Related Legislation*

To the Board of the Central Bank of the Republic of Turkey Ankara

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of the Central Bank of the Republic of Turkey (“the Bank”), which comprise the balance sheet as of 31 December 2018 as well as the income statement, statement of comprehensive, statement of changes in equity and statement of cash flows, and notes to the financial statements, including a summary of significant accounting policies pertaining to the accounting year that ends on the same date as the balance sheet.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Bank as at 31 December 2018, and its financial performance and its cash flows for the year then ended in accordance with the Law of the Central Bank of the Republic of Turkey and related legislation (Note I.A.(2)).

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. Regarding the independent audit of financial statements, we are independent of the Bank in accordance with the Code of Ethics for Professional Accountants (Code of Ethics) issued by the International Ethics Standards Board for Accountants’ (IESBA Code) as well as the ethical rules in Turkey. We have also fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Additional Opinion

The financial statements of the Bank pertaining to accounting year ending on 31 December 2018 have been audited by an external auditor and the auditor has submitted a positive opinion on the financial statements on 5 March 2018.

Responsibilities of the Management and Those Charged with Governance with Respect to the Financial Statements

The Bank Management is responsible for ensuring that the financial statements of the Bank are prepared and fairly presented in accordance with the Law of the Central Bank of the Republic of Turkey and related legislation (Note I.A.(2)), and for such internal controls as management deems necessary to make sure that the financial statements are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the management is responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to the going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Bank’s financial reporting process.

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Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of “material misstatement” of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate for the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate to those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

KPMG Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş.A member firm of KPMG International Cooperative

Erdal Tıkmak Partner

Istanbul, 22 February 2019

* The full text of the Report is accessible at the Bank’s web site (www.tcmb.gov.tr), under About the Bank / Organization / Independent Audit Reports

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3.6.4 Independent Audit Report Drawn up in Compliance with IFRS*

To the Board of the Central Bank of the Republic of TurkeyAnkara

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of the Central Bank of the Republic of Turkey (the “Bank”), which comprise the statement of financial position as at 31 December 2018, and the statement of profit or loss, statement of other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Bank as at 31 December 2018, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs).

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Bank in accordance with the Code of Ethics for Professional Accountants (IESBA Code) issued by the International Ethics Standards Board for Accountants and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Additional Opinion

The financial statements of the Bank pertaining to accounting year ending on 31 December 2018 have been audited by an external auditor and the auditor has submitted positive opinion on the financial statements on 5 March 2018.

As stated in Note (3,a), the monetary amounts in US dollars (USD) in the accompanying financial statements are in Turkish lira (TRY) calculated based on the official Central Bank buying rates announced 31 December 2017 and 2018 in financial position tables; whereas, the USD amounts in income statements are the average rates calculated based on official daily buying rates announced by the CBRT in 2018 and 2017, and they are not part of the financial tables herein.

Responsibilities of Management and Those Charged with Governance for the Financial Statement

The Bank Management is responsible for ensuring that the financial statements of the Bank are prepared and fairly presented in accordance with IFRS and for such internal controls as management deems necessary to make sure that the financial statements are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to the going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations,

Those charged with governance are responsible for overseeing the Bank’s financial reporting process.

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Central Bank of the Republic of Turkey Annual Report 2018 Part 3 Financial Statements

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. (The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.)

• An understanding of internal control relevant to the audit is obtained in order to be used in the design of audit procedures that are appropriate for the circumstances, not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control.

• Evaluate the appropriateness of accounting policies used, the reasonableness of accounting estimates and related disclosures made by the management.

• Conclude on the appropriateness of management’s use of the going concern principle of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair -presentation.

We communicate to those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

KPMG Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. A member firm of KPMG International Cooperative

Erdal TıkmakPartner

İstanbul, 22 February 2019

* The full text of the Report is accessible at the Bank’s web site (www.tcmb.gov.tr), under About the Bank / Organization / Independent Audit Reports

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Head OfficeHacı Bayram Mahallesi İstiklal Caddesi No: 1006050 Ulus Altındağ/Ankara (+90 312) 507 [email protected]

Banknote Printing PlantEmniyet MahallesiDögol Caddesi No:1406560 Beşevler Yenimahalle/Ankara(+90 312) 296 [email protected]

Central Bank of the Republic of Turkey – Contact Details

Istanbul School of Central BankingFener Kalamış CaddesiAtlıhan Sokak No:30/A 34726 Fenerbahçe Kadıköy/İstanbul(+90 216) 542 [email protected]

Offices of Economic Counsellor of Republic of Turkey, Ministry of Foreign Affairs

Frankfurt, Germany+49 69 298 01 100 +49 69 298 01 103

Mainzer Landstrasse 47 60329 Frankfurt am Main GERMANY

London, UK +44 20 722 09 590Alpha House 1st Floor, 24a Lime Street, London EC3M 7HJ UNITED KINGDOM

New York, USA +1 212 682 87 17Turkish Consulate General of New York Office of Economic Counselor 825 3rd Avenue, 5th Floor, New York, NY 10022 USA

Washington DC, USA +1 202 904 00 802525 Massachusetts Avenue, N.W. Washington DC, 20008 USA

Beijing, PRC +86 1065321715/187Embassy of the Republic of Turkey 9 Dong Wu Jie, San li Tun 100600 Beijing / P.R. CHINA

Tokyo, Japan +81 3 3470 2395Turkish Embassy Economic Section 2-33-6 Jingumae, Shibuya- ku, Tokyo 150-0001 JAPAN

Doha, Qatar +974 40390500

Embassy of the Republic of Turkey Economic Office, Office A 40 Floor, Tornado Tower, P.0. Box:1977, Al Katifiya Zone 66, Al Rabwa Street, 310 Diplomatic Area, Dafna Doha-QATAR

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Branches Phone Address

Adana Branch (+90 322) 352 03 50 Tepebağ Mahallesi Abidinpaşa Caddesi No:31/A 01010 Seyhan / Adana

Ankara Branch (+90 312) 507 50 00 Hacı Bayram Mahallesi Atatürk Bulvarı No:4 06050 Ulus Altındağ / Ankara

Antalya Branch (+90 242) 248 75 46 Sinan Mahallesi Ali Çetinkaya Caddesi No:14 07100 Muratpaşa / Antalya

Bursa Branch (+90 224) 224 34 50 Santral Garaj Mahallesi Kıbrıs Şehitleri Caddesi No:94 16200 Osmangazi / Bursa

Denizli Branch (+90 258) 265 27 67 Sırakapılar Mahallesi Gazi Mustafa Kemal Bulvarı No:90/A 20010 Merkezefendi / Denizli

Diyarbakır Branch (+90 412) 224 61 94 İskenderpaşa Mahallesi İnönü Caddesi No:33 21300 Sur / Diyarbakır

Edirne Branch (+90 284) 213 97 00 Çavuşbey Mahallesi Hükümet Caddesi No:17 22020 Edirne

Erzurum Branch (+90 442) 213 54 63 Kazım Karabekir Paşa Mahallesi Orhan Şerifsoy Caddesi No:42 25100 Yakutiye / Erzurum

Eskişehir Branch (+90 222) 230 39 90 Arifiye Mahallesi Müftülük Sokak No:2 26010 Odunpazarı / Eskişehir

Gaziantep Branch (+90 342) 230 36 80 İncilipınar Mahallesi Kamil Ocak Caddesi No:5 27090 Şehitkamil / Gaziantep

İskenderun Branch (+90 326) 613 15 87 Çay Mahallesi Ulu Camii Caddesi Merkez Bankası Sit, No:1/1 31300 İskenderun / Hatay

İstanbul Branch (+90 212) 251 80 00 Arapcami Mahallesi Bankalar Caddesi No:13 34421 Karaköy-Beyoğlu / İstanbul

İzmir Branch (+90 232) 482 00 35 Konak Mahallesi Cumhuriyet Bulvarı No:3 35250 Konak / İzmir

İzmit Branch (+90 262) 322 05 00 Kemalpaşa Mahallesi Cumhuriyet Caddesi No:36 41200 İzmit / Kocaeli

Kayseri Branch (+90 352) 221 14 95 Şehit Nazımbey Mahallesi İnönü Bulvarı No:70 38150 Melikgazi / Kayseri

Konya Branch (+90 332) 353 17 10 Şems-i Tebrizi Mahallesi Mevlana Caddesi No:25 42030 Karatay / Konya

Malatya Branch (+90 422) 212 90 00 İnönü Mahallesi İnönü Caddesi No:186 44070 Yeşilyurt / Malatya

Mersin Branch (+90 324) 238 83 15 Camişerif Mahallesi İstiklal Caddesi No:25/A 33060 Akdeniz / Mersin

Samsun Branch (+90 362) 431 46 40 Kale Mahallesi Kazımpaşa Caddesi No:26 55030 İlkadım / Samsun

Trabzon Branch (+90 462) 230 25 80 Toklu Mahallesi Devlet Sahilyolu Caddesi No:357 61040 Ortahisar / Trabzon

Van Branch (+90 432) 214 14 55 Şerefiye Mahallesi Cumhuriyet Bulvarı No:57 65100 İpekyolu / Van

Central Bank of the Republic of Turkey - Contact Details

The Central Bank of the Republic of Turkey held the 2nd International Photography Contest named “Economy and Crafts.” Three award-winning pieces of this contest are included as separators among sections of the 2018 Annual Report:· “Life and Livelihood” by Abhijit Banerjee· “The Pinnacle” by Haşim Kandilcioğlu· “The Saddlemaker” by Hakan Çöplü.

2018

Annual Report

TÜRKİYE CUMHURİYET MERKEZ BANKASI(CENTRAL BANK OF THE REPUBLIC OF TURKEY)İdare Merkezi (Head Office) Hacı Bayram Mahallesi İstiklal Caddesi No:10 06050 Ulus, Altındağ / Ankara www.tcmb.gov.tr

Annual Report 2018

Documents

Annual Report - tcmb.gov.tr