RPT-Fitch downgrades Turkland Bank following action on parent

Thu Jan 9, 2014 7:10am EST

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Jan 9 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has downgraded Turkland Bank A.S.'s (Turkland) Long-term foreign and local currency Issuer Default Ratings (IDRs) to 'BB' from 'BBB-', Short-term foreign and local currency IDRs to 'B' from 'F3', National Long-term rating to 'AA-(tur)' from 'AAA(tur)' and Support Rating to '3' from '2' and removed them from Rating Watch Negative (RWN). The Outlook on the Long-term IDRs and National Long-term rating is Negative. The bank's Viability Rating (VR) is unaffected by these actions.

KEY RATING DRIVERS - IDRs, NATIONAL RATING AND SUPPORT RATING

The rating actions follow the downgrade of Arab Bank PLC's Long-term IDR to 'BBB-' from 'A-' (see 'Fitch Downgrades Arab Bank PLC to BBB-; Negative Outlook' dated 9 January 2014 at www.fitchratings.com). The Outlook on Arab Bank's Long-term IDR is Negative, reflecting the increasingly tough operating environment in Jordan, Egypt and Tunisia. The Negative Outlook on Turkland's ratings mirrors that on Arab Bank.

Turkland's IDRs, National Rating and Support Rating are driven by potential support from Arab Bank.

The notching differential between Turkland's and Arab Bank's foreign currency Long-term IDRs has been reduced to two notches from three. The previous three-notch differential reflected (i) Turkland's ownership structure, in which Arab Bank (28% stake) and its sister bank, Arab Bank (Switzerland) Ltd (22%), control only a combined 50% of the bank's capital, with Lebanese Bank Med SAL (not rated by Fitch) holding the other 50%; (ii) Turkland is small in relation to Arab Bank and has a limited impact on the latter's balance sheet and income statement; and (iii) Fitch's opinion that Turkland is of limited importance to Arab Bank.

These considerations still hold true for Fitch. However, Fitch has now given added weight to Arab Bank's strong track record of subsidiary support and its commitment to grow Turkland, as evidenced by regular capital injections (Arab Bank entities provided around USD50m of fresh capital in 2013). The downgrade of Turkland's National Long-term rating results from the downgrade of the IDRs. National ratings are assigned in accordance with a ratings correspondence schedule. The downgrade of Turkland's Support Rating reflects Fitch's view that Arab Bank's ability to provide support to its Turkish subsidiary, if required, has reduced.

RATING SENSITIVITIES - IDRs, NATIONAL RATING AND SUPPORT RATING

Turkland's ratings are sensitive to any change in the ability and/or propensity of entities within the Arab Bank group to provide support, if needed. This could be triggered, for example, if Fitch's opinion of Jordan's creditworthiness weakened. Any indication of a material reduction in Arab Bank's commitment to its subsidiary would also impact Turkland's ratings, but this is not expected by Fitch at present.

The rating actions are as follows:

Turkland Bank A.S.

Long-term foreign and local currency IDR: downgraded to 'BB' from 'BBB'-; off RWN; Negative Outlook

Short-term foreign and local currency IDR: downgraded to 'B' from 'F3'; off RWN

National Long-term rating: downgraded to 'AA-(tur)' from 'AAA(tur)'; off RWN; Negative Outlook

Support Rating: downgraded to '3' from '2'

Viability Rating: unaffected at 'b+'

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