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July 12 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has upgraded Anadolubank A.S.'s Long-Term IDRs to 'BB+' from 'BB', with a Stable Outlook, and Viability Rating (VR) to 'bb+' from 'bb'. A full list of rating actions is at the end of this rating action commentary.
KEY RATING DRIVERS - VR AND IDRS
The upgrade reflects the bank's extended track record of consistently good performance with sound asset quality and comfortable capital levels. The ratings are also supported by the bank's comfortable liquidity and conservative management. However, the ratings also reflect the bank's limited franchise, some uncertainty regarding the long-term sustainability of its business model, and the potential for some moderate near-term deterioration in performance and asset quality.
Anadolubank's performance improved in 2012, as margins increased in a falling rate environment, and in Q113, operating return on average assets reached a high 3.3% (well above the peer average of 2%). However, Fitch expects margins to contract in 2013 as repricing continues and competition increases, which will put pressure on banks' profitability.
To date, Anadolubank has consistently reported sound asset quality metrics that outperform its immediate peers: impaired loans at end-Q113 were a low 3.5% of gross loans (peer average: 4.4%) and were fully covered by reserves. In Fitch's view, asset quality is likely to deteriorate moderately as loan portfolios season following recent growth. Capitalisation is also a rating positive for the bank, with a robust Fitch core capital/weighted risks ratio of 18%.
Anadolubank is primarily funded by customer deposits, which account for over two-thirds of its liabilities. The bank's comfortable liquidity is underpinned by the historical stability of the deposit base, the relatively short-term nature of the loan book and a reasonable stock of liquid assets held on its balance sheet.
In Fitch's view, contagion risks from the bank's majority owner, Habas Sinai ve Tibbi Gazlar Istihsal Endustri A.S. (Habas; B+/Stable), a corporate with its main operations in the steel industry, are moderate, permitting a three-notch difference between the subsidiary and parent ratings. This view is based on (i) the fact that the two companies have operated independently of each other to date; and (ii) Habas's moderate debt levels and limited investment plans, in light of which any potential refinancing needs are also likely to be contained. At end-2012, Habas had total debt of approximately TRY300m (comprising loans from local banks), which was equal to just 25% of Anadolubank's Fitch core capital.
RATING SENSITIVITIES - VR AND IDRS
The bank's modest franchise and the current level of Turkey's sovereign ratings (BBB-/Stable) mean that any further upward movement of the ratings is unlikely. A marked deterioration in Anadolubank's financial metrics - including a greater than anticipated deterioration in asset quality as loans season - could put downward pressure on the VR. A substantial increase in Habas's leverage, or greater involvement of Anadolubank in funding its parent, could also result in a downgrade.
KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR
The downgrade of Anadaolubank's Support Rating to '5' from '4' reflects a reassessment by Fitch of Habas's ability to support the bank given the relative size of the two entities. The Support Rating Floor of 'No Floor' reflects Fitch's view that sovereign support for the bank, although possible, cannot be relied on.
RATING SENSITIVITIES - SUPPORT RATING
The Support Rating could be upgraded if Anadolubank was acquired by a higher rated entity.
The rating actions are as follows:
Long-term foreign and local currency IDRs: upgraded to 'BB+' from 'BB'; Outlook Stable
Short-term foreign and local currency IDRs: affirmed at 'B'
Viability Rating: upgraded to 'bb+' from 'bb'
Support Rating: downgraded to '5' from '4'
Support Rating Floor: assigned at 'NF'
National Long-term Rating: affirmed at 'AA(tur)'; Outlook Stable