Fitch Affirms 3 Turkish Foreign-Owned Banks; Upgrades TEB's VR to 'bbb-'

Thu Apr 18, 2013 10:31am EDT

(The following statement was released by the rating agency) LONDON/ISTANBUL, April 18 (Fitch) Fitch Ratings has affirmed the Long-term (LT) foreign currency Issuer Default Ratings (IDR) of Turkey's Finansbank A.S. and Denizbank T.A.S. at 'BBB-' and of Turk Ekonomi Bankasi A.S. (TEB) at 'BBB'. The ratings have a Stable Outlook. At the same time, the agency has upgraded TEB's Viability Rating (VR) to 'bbb-' from 'bb+', reflecting improvements following a merger process in 2011. A full list of rating actions is below. KEY RATING DRIVERS - IDRS AND NATIONAL RATINGS The three banks are second-tier Turkish institutions, majority owned by foreign shareholders. Finansbank's and Denizbank's IDRs are driven by their intrinsic financial strength, as reflected by their 'bbb-' VRs. Denizbank's IDRs are also underpinned by potential support from the bank's owner, Sberbank of Russia (BBB/Stable/bbb). TEB's IDRs are driven by potential support from its majority shareholder, BNP Paribas (BNPP; 'A+'/Stable). The 'BBB' Long-term foreign currency IDR is capped at the Country Ceiling, and the 'BBB+' Long-term local currency IDR also takes into account country risks. The 'AAA(tur)' National Ratings of all three banks reflect the agency's opinion that, on a relative scale, these issuers have some of the best credit profiles in Turkey. RATING SENSITIVITIES - IDRS AND NATIONAL RATINGS TEB's IDRs could be upgraded or downgraded if there were changes to Turkey's Country Ceiling. The ratings could also be downgraded if there was a multi-notch downgrade of BNPP, or a sharp reduction in the parent's commitment to the subsidiary, neither of which is currently anticipated by Fitch. Denizbank's IDRs could be upgraded if the bank's VR was upgraded or the Long-term IDRs of Sberbank of Russia were upgraded. Denizbank's IDRs could be downgraded if both the VR was downgraded and Sberbank's Long-term IDRs were downgraded. Finansbank's IDRs are sensitive to any change in the bank's VR. KEY RATING DRIVERS - VRs Finansbank and Denizbank's VRs are supported by their solid credit metrics, reflected in adequate capital levels, sound risk management and credit underwriting capabilities, solid profitability, expanding franchises and stable deposit funding. However, the ratings also take into account risks resulting from quite rapid recent and ongoing growth, and the fact that loan books will season in an environment of slower economic growth. Finansbank's VR also reflects Fitch's view that contagion risks from its 95% ownership by National Bank of Greece ('CCC'/'f') are low. Despite Greece's protracted and severe economic crisis, Finansbank has suffered no deposit outflows, reputation damage, loss of franchise or loss of market access. Asset exposures to NBG, or Greece more generally, are negligible, and funding from NBG is also limited. Any re-escalation of the Greek crisis is unlikely to have a direct negative impact on Finansbank's ratings. The upgrade of TEB's VR reflects improvements in the bank's credit profile following the merger with Fortis Bank A.S. in February 2011. Following steps taken by management, significant improvements have been achieved in both efficiency and funding self-sufficiency, adding to the strengthening of the franchise resulting from the merger. Most of TEB's standalone credit metrics are now broadly in line with those of Finansbank and Denizbank. Key credit metrics for all three banks remain sound. Net interest margins, in excess of 5% at all three banks, are especially high at Finansbank (6.8%), reflecting a higher share of retail business. Profitability is robust, with operating returns on assets ranging from 1.6% to 2.2% in 2012. Loan quality is varied, with impaired loans representing just 2.2% of total loans at TEB, slightly higher at Denizbank (3.6%), and a high of 6.3% at Finansbank. This reflects the different business mixes at the banks, with corporate lending comprising a larger part of the portfolio at TEB, Denizbank more middle market/SME-focused and Finansbank targeting retail segments. In addition, Finansbank makes very few write offs and, unlike some other Turkish banks, it sells a negligible amount of impaired loans. Funding at each of the banks is sourced primarily from customer deposits. However, wholesale funding is also significant, with loans/deposit ratios at end-2012 of 123% at Finansbank, 111% at TEB and 110% at Denizbank. Capital ratios are adequate considering risk profiles, with Fitch core capital (FCC) representing 14.9% of Finansbank's risk weighted assets at end-2012, in keeping with a client base focused on higher risk segments. TEB and Denizbank's FCC ratios were 11.5% and 10.1%, respectively. RATING SENSITIVITIES - VRs The three banks' VRs are now at the same level as the Turkish sovereign's Long-term foreign currency IDR ('BBB-'/Stable). Upgrades of the VRs without an upgrade of the Turkish sovereign are therefore unlikely, given their mid-sized franchises, the already investment grade level of the ratings and moderate risks arising from continued growth in a more challenging operating environment. The VRs could be downgraded if there was a marked slowdown in the economy, signs of significant deterioration in banks' asset quality or underwriting, or a clear deterioration in leverage and/or performance as the banks continue to grow. KEY RATING DRIVERS AND SENSITIVITIES - SUPPORT RATINGS AND SUPPORT RATING FLOORS TEB and Denizbank's Support Ratings of '2' reflect Fitch's opinion that there is a high probability that the parent banks will support their subsidiaries should the need arise. Near-term changes in these ratings are unlikely given the shareholder ratings and the current level of the Country Ceiling. Fitch rules out support for Finansbank from NBG considering the latter's currently weak ability to provide support. Finansbank's '3' Support Rating and 'BB-' Support Rating Floor reflect Fitch's view that there is a moderate probability of support from the Turkish government, if required, given the bank's systemic importance. The rating could be downgraded in case of a multi-notch downgrade of Turkey, which Fitch views as unlikely. The rating actions are as follows: Finansbank: Long-term foreign and local currency IDRs: affirmed at 'BBB-' with Stable Outlook Short-term foreign and local currency IDRs: affirmed at 'F3' Viability Rating: affirmed at 'bbb-' Support Rating: affirmed at '3' National Rating: affirmed at 'AAA(tur)' with Stable Outlook Support Rating Floor: affirmed at 'BB-' Senior unsecured long-term debt: affirmed at 'BBB-' Denizbank: Long-term foreign and local currency IDRs: affirmed at 'BBB-' with Stable Outlook Short-term foreign and local currency IDRs: affirmed at 'F3' Viability Rating: affirmed at 'bbb-' Support Rating: affirmed at '2' National Rating: affirmed at 'AAA(tur)' with Stable Outlook Turk Ekonomi Bankasi: Long-term foreign currency IDR: affirmed at 'BBB' with Stable Outlook Long-term local currency IDR: affirmed at 'BBB+' with Stable Outlook Short-term foreign currency IDR: affirmed at 'F3' Short-term local currency IDR: affirmed at 'F2' National Long-term rating: affirmed at 'AAA(tur)' with Stable Outlook Viability Rating: upgraded to 'bbb-' from 'bb+' Support Rating: affirmed at '2' Contact: Primary Analyst (Finansbank and Denizbank) Janine Dow Senior Director +44 20 3530 1464 Fitch Ratings Limited 30 North Colonnade London E14 5GN Primary Analyst (Turk Ekonomi Bankasi) Banu Cartmell Director +44 20 3530 11 09 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst (Finansbank and Denizbank) Levent Topcu Director +90 212 284 7819 Secondary Analyst (Turk Ekonomi Bankasi) Janine Dow Senior Director +44 203530 1464 Committee Chair James Watson Managing Director +7495 956 6657 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: Additional information is available at Applicable criteria, 'Global Financial Institutions Rating Criteria' dated August 2012, 'National Ratings Criteria' dated January 2011, 'Rating Financial Institutions Above the Local Currency Sovereign Rating' dated December 2012 and 'Rating FI Subsidiaries and Holding Companies' dated August 2012 are available at Applicable Criteria and Related Research Global Financial Institutions Rating Criteria here National Ratings Criteria here Rating Financial Institutions Above the Sovereign here Rating FI Subsidiaries and Holding Companies here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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