TEXT-Fitch upgrades Turkey's large private banks, subsidiaries

Fri Dec 14, 2012 11:22am EST

Dec 14 - Fitch Ratings has upgraded the Long-term Issuer Default Ratings
(IDRs) of Turkey's three largest privately-owned banks - Turkiye Is Bankasi A.S.
 (Isbank), Turkiye Garanti Bankasi A.S. (Garanti) and
Akbank T.A.S. (Akbank) - to 'BBB' from 'BBB-'. Yapi ve Kredi Bankasi
A.S.'s (Yapi Kredi) Long-term IDRs have been affirmed at 'BBB', and the Outlook
revised to Stable from Negative.

The rating actions have been driven by the upgrades of the four banks' Viability
Ratings (VR) to 'bbb' from 'bbb-'. Fitch has also upgraded the IDRs of
subsidiaries of Isbank, Garanti and Akbank. A full list of rating actions is at
the end of this commentary.

RATING ACTION RATIONALE AND DRIVERS: IDRS, VRS, DEBT RATINGS
The rating actions on the four banks' IDRs and debt ratings are driven by the
upgrades of their VRs. This in turn reflected the reduced near-term risks for
the Turkish economy, which has achieved a 'soft landing' in 2012 and is set to
return to higher growth rates from 2013, and the reduction in sovereign risk,
reflected in the recent upgrade of Turkey to 'BBB-' (see 'Fitch Upgrades Turkey
to Investment Grade' dated 5 November 2012 at www.fitchratings.com).

The VRs also consider the banks' strong franchises, sound management and
generally strong financial metrics in terms of capitalisation, asset quality,
performance, liquidity and funding. The still moderate level of systemic risks
and imbalances in the broader Turkish banking system is also a supporting factor
for the ratings.

Following the upgrades, the banks' VRs and Long-term IDRs are one notch higher
than Turkey's foreign currency Long-term IDR, restoring the rating relativity
that existed before the sovereign upgrade (although the banks' ratings are now
in line with the sovereign's local currency Long-term IDR of 'BBB'). The rating
of the banks above the sovereign reflects their very strong all-round credit
profiles, and in particular the depth and stability of their deposit franchises.
In light of these strengths, Fitch believes the banks would be likely to retain
the capacity to service their obligations even during a period of considerable
macroeconomic stress, including a potential sovereign default.

The banks' VRs and Long-term IDRs are constrained by risks related to their own
growth, future macroeconomic stability and the sovereign credit profile. The
banks' recent rapid expansion has resulted in some moderation of previously very
strong capital and funding ratios, and planned further growth may result in
continued (albeit slower) erosion of these metrics. Loan books are also largely
unseasoned, although Fitch expects asset quality to deteriorate only moderately
in the near term given still limited corporate and household leverage, continued
economic growth, the absence of foreign currency retail lending and generally
sound credit underwriting.

Although Fitch's base case is for GDP growth to rebound to3.8% in 2013 after a
slowdown to 3% in 2012, the agency expects the economy to remain more volatile
than investment grade peers, and believes that at some point an external
financing shock and recession are likely. In Fitch's view, the banks' strong
credit fundamentals make them relatively well placed to withstand such shocks.
However, some volatility in their performance is probable.

Although the sovereign rating does not act as a cap for the banks' ratings, it
nevertheless constrains the potential level of their VRs and IDRs because of the
strong correlation between sovereign and bank profiles. The banks are inevitably
highly exposed to the domestic economy and also have considerable direct
exposure to the sovereign in the form or large holdings of government debt.

Operating (pre-tax) return on assets for the four banks were between 2.1% and
2.7% in Q312 (slightly higher at Garanti than at peers). Impaired loans have
remained moderate at all banks, but were slightly higher at Yapi Kredi (3.4% at
end-Q312), reflecting the bank's strong position in higher-yielding unsecured
consumer and SME loans, and lowest at Akbank (1.5%). Funding structures are
solid, with customer deposits representing around two-thirds of non-equity
liabilities, and liquidity is well managed, although loans/deposits ratios have
increased, most notably at Akbank and Yapi Kredi (both 1.2x at end-Q312).
Capital ratios are sound at each of the banks, but particularly strong at Akbank
(Fitch core capital/weighted risks ratio of 16.1% at end-Q312) and Garanti
(15.4%). Yapi Kredi's ratio was a more moderate 9.6%, although the bank plans to
support this through retained earnings and the sale of its insurance subsidiary.

RATING SENSITIVITIES: IDRS, VRS, DEBT RATINGS
The VRs and local currency Long-term IDRs of Isbank, Garanti and Akbank could be
upgraded by one more notch, to 'bbb+'/'BBB+', if the banks are able to broadly
maintain their current sound financial metrics as they continue to grow, and
asset quality remains good as loan books season. Macroeconomic stability and
less volatile economic growth would also be favourable for the banks' credit
profiles. However, the banks' foreign currency Long-term IDRs and debt ratings
are capped at the 'BBB' Country Ceiling, and would not be upgraded even if the
VRs were upgraded.

The VRs and Long-term IDRs of Isbank, Garanti and Akbank could be downgraded if
they mismanage future growth, resulting in significantly higher balance sheet
leverage, weaker credit underwriting and a major deterioration in asset quality.
However, Fitch currently views such a scenario as unlikely.

Upside potential for Yapi Kredi's VR is more limited than for its three peers
because of moderately weaker capital, asset quality and funding ratios. At the
same time, downside risk for Yapi Kredi's IDRs is also limited, as these are
underpinned at the 'BBB' level by potential support from Unicredit (UC;
'A-'/Negative), which holds a 50% stake in Yapi Kredi's holding company. Yapi
Kredi's IDRs would only be downgraded in case of both a downgrade of the bank's
VR and a weakening of potential support from UC.

The VRs and IDRs of all four banks would also be sensitive to changes in
Turkey's sovereign ratings. A sovereign downgrade would be likely to result in a
lowering of the bank's ratings, while a sovereign upgrade could create scope for
a further upgrade of the banks. However, no changes in the sovereign ratings are
currently anticipated, reflected in the Stable Outlook.

RATING DRIVERS AND SENSITIVITIES: SUPPORT RATING AND SUPPORT RATING FLOOR
The Support Ratings of Isbank, Garanti and Akbank have been affirmed at '3', and
the Support Rating Floors (SRFs) of these banks have been revised to 'BB+' from
'BB'. This reflects Turkey's improved ability to provide support to the
country's systemically important private sector banks, should it be required.

In assessing potential sovereign support for Isbank, Garanti, and Akbank, Fitch
considers the still relatively small size of Turkey's banking sector (loans/GDP
of 53%), the banks' systemic importance (combined, they account for loan and
deposit market shares of 39% and 37%, respectively) and the Turkish authorities'
still strongly supportive stance in respect to the country's banks. At the same
time, the probability of support is somewhat reduced by the banks' private
ownership and ongoing global changes in governments' approach towards supporting
failed banks.

The SRFs could be lowered in case of a sovereign downgrade or a marked change in
the authorities' support stance. Further upgrades of the SRFs are unlikely
unless the sovereign's Long-term foreign currency IDR is upgraded.

Yapi Kredi's Support Rating of '2' is based on potential support from UC and is
sensitive to a multinotch downgrade of UC's Long-term IDR and/or a change of its
international policy, whereby Yapi Kredi's strategic importance within the group
would be reduced.

RATING ACTION RATIONALE, DRIVERS AND SENSITIVITIES: SUBSIDIARIES
The IDRs of Is Finansal Kiralama A.S., Garanti Finansal Kiralama A.S., Ak
Finansal Kiralama A.S. and Is Yatirim Menkul Degerler A.S. are support-driven
and equalised with those assigned to the parents. Fitch views these companies as
core subsidiaries given their close integration, common management and integral
strategic importance. The ratings of the subsidiaries are sensitive to changes
in the parents' ratings.

Fitch has also upgraded Turkiye Sinai Kalkinma Bankasi A.S.'s (TSKB) Long-term
IDR to 'BBB-' from 'BB+'. TSKB's IDRs are driven by potential support from its
50.1% shareholder, Isbank. The rating is one notch lower than that of Isbank due
to the high level of minority ownership, the moderate degree of integration with
the parent, TSKB's niche franchise in development lending and the lack of common
branding. Fitch also views sovereign support for TSKB as probable given the
bank's policy role and the fact that the bulk (in excess of 90%) of its
non-equity funding is already guaranteed by the Turkish sovereign.

The ratings actions are as follows:

Isbank, Garanti, Akbank
Long-term foreign and local currency IDR: upgraded to 'BBB' from 'BBB-'; Outlook
Stable
Short-term foreign and local currency IDR: affirmed at 'F3'
Short-term local currency IDR: affirmed at 'F3'
National Long-term rating: affirmed at 'AAA(tur)'; Stable Outlook
Viability Rating: upgraded to 'bbb' from 'bbb-'
Support Rating: affirmed at '3'
Support Rating Floor: revised to 'BB+' from 'BB'
Senior unsecured debt: upgraded to 'BBB' from 'BBB-'
Subordinated debt (Isbank only): upgraded to 'BBB-' from 'BB+'

Yapi Kredi
Long-term foreign and local currency IDR: affirmed at 'BBB'; Outlook revised to
Stable from Negative
Short-term foreign and local currency IDR: affirmed at 'F3'
National Long-term rating: affirmed at 'AAA(tur)'; Outlook changed to Stable
from Negative
Viability Rating: upgraded to 'bbb' from 'bbb-'
Support Rating: affirmed at '2'
Senior unsecured debt: affirmed at 'BBB'
Subordinated debt: affirmed at 'BBB-'

TSKB
Long-term foreign and local currency IDR: upgraded to 'BBB-' from 'BB+'; Outlook
Stable
Short-term foreign and local currency IDR: upgraded to 'F3' from 'B'
National Long-term rating: upgraded to 'AAA(tur)' from 'AA+(tur)' Outlook Stable
Support Rating: upgraded to '2' from '3'

Is Yatirim Menkul Degerler A.S.
National Long-term rating: affirmed at 'AAA(tur)' Outlook Stable

Is Finansal Kiralama A.S.
Long-term foreign and local currency IDR: upgraded to 'BBB' from 'BBB-'; Outlook
Stable
Short-term foreign currency and local currency IDR: affirmed at 'F3'
National Long-term rating: affirmed at 'AAA(tur)'; Outlook Stable
Support Rating: affirmed at '2'

Garanti Finansal Kiralama A.S.
Long-term foreign and local currency IDR: upgraded to 'BBB' from 'BBB-'; Outlook
Stable
Short-term foreign currency and local currency IDR: affirmed at 'F3'
National Long-term rating: affirmed at 'AAA(tur)'; Outlook Stable
Support Rating: affirmed at '2'

Ak Finansal Kiralama A.S.
Long-term foreign and local currency IDR: upgraded to 'BBB' from 'BBB-'; Outlook
Stable
Short-term foreign currency and local currency IDR: affirmed at 'F3'
National Long-term rating: affirmed at 'AAA(tur)'; Outlook Stable
Support Rating: affirmed at '2'


Additional information is available at www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable criteria, 'Global Financial Institutions Rating Criteria' dated
August 2012, available at www.fitchratings.com.

Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
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