Fitch Takes Various Rating Actions on 7 Small Turkish Banks

Wed Jul 9, 2014 11:56am EDT

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(The following statement was released by the rating agency) LONDON, July 09 (Fitch) Fitch Ratings has taken various rating actions on seven small Turkish banks. The agency has affirmed the ratings of Arap Turk Bankasi A.S. (A&T Bank), BankPozitif Kredi ve Kalkinma Bankasi A.S., Tekstil Bankasi A.S. and Turkland Bank A.S. The Viability Rating (VR) of Anadolubank A.S. was downgraded to 'bb' from 'bb+'. This resulted in a downgrade of the bank's Long-term Issuer Default Ratings (IDRs) to 'BB' from 'BB+' and a downgrade of the Long-term National Rating to 'AA-(tur)' from 'AA(tur)'. The VR of Alternatifbank A.S. was downgraded to 'b+' from 'bb' but this did not impact its Long-term IDR and National Long-term rating which are support-driven. The Outlook on Sekerbank T.A.S's Long-term IDRs and National Long-term rating was changed to Negative from Stable. A full list of rating actions is at available the end of this rating action commentary. KEY RATING DRIVERS - IDRS, NATIONAL RATINGS, VRS AND SUPPORT RATINGS Institutional support drives the IDRs and National ratings of Alternatifbank (74.25% owned by Commercial bank of Qatar - A/Stable), BankPozitif (around 70% controlled by Bank Hapoalim - A-/Stable) and Turkland Bank (50% owned by Arab Bank PLC - BBB-/Negative). Alternatifbank and Turkland Bank are viewed as strategically important subsidiaries for their respective parents. Turkland Bank is notched down two levels from Arab Bank PLC's Long-term Foreign Currency IDR to reflect its 50% ownership. Alternatifbank's Long-term IDRs are constrained by Turkey's Country Ceiling of 'BBB'. The importance of BankPozitif to its parent bank is considered to be limited because of its small size and the subsidiary is notched down three levels from the parent's rating. Parental support is not formally factored into the IDRs and National ratings of either A&T Bank, wholly-owned by The Libyan Foreign Bank which is not rated by Fitch, or Sekerbank, around 34% controlled by Kazakhstan's sovereign wealth fund, Samruk Kazyna (SK). SK provides little strategic or operational support to the bank. An offer made by Industrial and Commercial Bank of China (ICBC; A/Stable) for around 75% of Tekstilbank's shares is awaiting regulatory approval, expected to be forthcoming by end-2014. . The Positive Rating Watch (RWP) on Tekstilbank's IDRs, National rating and Support rating will be resolved if and when ownership changes. The IDRs and National ratings of Anadolubank, A&T Bank, Sekerbank and Tekstilbank are driven by their VRs. In the case of Tekstilbank, this may change, pending the potential ownership change. The VRs of all seven banks range from 'b+' (Alternatifbank, Tekstilbank, BankPozitif and Turkland Bank) to 'bb-' (Sekerbank and A&T Bank) and 'bb' (Anadolubank). The revision of the Outlook on Sekerbank to Negative reflects a deteriorating trend in several key financial metrics, including asset quality, capitalisation and profitability. The downgrade of Alternatifbank's VR reflects primarily its much weakened core capital ratios as the bank pursues a strategy of rapid growth, vastly outpacing internal capital generation. Subsidiary Alternatif Finansal Kiralama's ratings are equalised with those of its parent because Fitch considers it as a core, highly integrated subsidiary. The downgrade of Anadolubank's VR reflects the more difficult operating conditions for small banks, resulting in margin pressure and some weakening of capital adequacy ratios. Key financial indicators at the bank, once well ahead of those displayed by other small Turkish banks, have now fallen more in line with peers'. The franchises of all seven banks are narrow - none of them controls a deposit market share in excess of 1%. Most offer a mixture of general commercial and retail banking services, largely to small and medium-sized companies. Two are more specialised, namely A&T Bank, which focuses on trade and other financial services conducted primarily between Turkey and Libya, and BankPozitif, which provides boutique transactional loans to large and medium-sized companies and specialised consumer loans. The banks' VRs reflect their limited franchises, small absolute size, and dwindling competitive advantages. The country's leading banks are increasingly able to undercut pricing and offer a broader product range. Operating conditions, to date in 2014, have been volatile, impacted by sharp interest rate movements and political pressure in the build-up to Presidential elections scheduled for August. Economic growth was robust in 1Q14 but confidence remains sluggish and loan growth slowed across all seven banks, with the exception of Anadolubank where loans were up by nearly 12%, which Fitch considers rather high. BankPozitif, Tekstilbank, Turkland Bank and, following the downgrade, Alternatifbank, share 'b+' VRs. BankPozitif is wholesale-funded and both its specialisation and strategy change frequently, limiting upside potential for the bank's VR. Tekstilbank and Turkland Bank are similar in size and product range. Both banks target corporate, commercial and SME customers, and relationships with core customers are well established. Given margin pressure, both banks are finding it difficult to absorb rising staff and administrative costs, and cost/income ratios are the highest among peers. Under new ownership, Alternatifbank's growth is being prioritised and the customer base is changing. The bank is seeking to develop relationships with other CBQ customers and subsidiaries. The stock of non-performing loans (NPLs) is rising rapidly and Fitch expects further deterioration as the loan book seasons. Core capital ratios are the lowest among peers but subordinated debt, provided largely by international financial institutions, boosts regulatory capital ratios. Given aggressive budgeted growth plans and weak internal capital generation, core capital ratios may soon come under renewed pressure, in Fitch's opinion. Sekerbank and A&T Bank are both rated 'bb-' in their VRs. A&T Bank's trade finance specialisation and its close relationship with its shareholder set it apart from the other six Turkish banks. Sekerbank, too, is somewhat different. It operates a fairly large branch network nationwide, and focuses on more remote areas of Turkey where it targets mainly small companies and retail customers. The bank has long enjoyed some of the widest margins among its peers but asset quality indicators have traditionally been weaker. The change in its Outlook to Negative reflects the bank's margin squeeze, potential asset quality deterioration and pressure on capital ratios. Anadolubank's VR is the highest among peers, at 'bb'. This reflects generally stronger metrics across a broad range of key areas. Anadolubank continues to boast the lowest NPLs /total loans ratio among peers (stable at 2.8%, reserved at a high 95%), while its cost control is strong and internal capital generation remains reasonable at around 10%. The NPL/total loan ratios for all seven banks average around 4% (Sekerbank: 5.4% at end-March 2014). Single name concentration risk is fairly high across all banks, as can be expected given their size and customer base. Fitch core capital (FCC)/weighted risks ratios at all seven banks range from a high 16% and 17% at BankPozitif and Tekstilbank, respectively, to a low 8.3% at Alternatifbank. The FCC/weighted risks ratio at Sekerbank (10.2% at end-March 2014) offers modest loss absorption capacity given the bank's risk profile and low internal capital generation capabilities. Anadolubank's FCC/weighted risks ratio, at around 13%, is considered adequate, especially given a high loan loss reserve cover at the bank, which means that expected losses are well reserved. The Support Ratings of '5' of Anadolubank, A&T Bank, Sekerbank and Tekstilbank reflect their lack of systemic significance in the Turkish banking sector; Fitch does not rule out potential support from the Turkish authorities for them but believes that such support cannot be relied upon. This is reflected in their 'No Floor' Support Rating Floors. The Support Ratings of '2' of Alternatifbank and BankPozitif and '3' for Turkland Bank reflect strong potential shareholder support. Alternatifbank's Long- and Short-term foreign currency IDRs are constrained by Turkey's 'BBB' Country Ceiling. The Long-term local currency IDR is notched down two times from CBQ's Long-term IDR, reflecting Fitch's classification of Alternatifbank as a 'strategically important' subsidiary for CBQ. Alternatifbank's Short-term foreign currency IDR was upgraded to 'F2' from 'F3' to reflect the higher certainty of the shareholder's propensity to support in the near term. Similar action was taken at Alternatifbank's leasing subsidiary. RATING SENSITIVITIES - IDRS, NATIONAL RATING, VRS AND SUPPORT RATINGS The IDRs and National ratings of A&T Bank, Anadolubank and Sekerbank are sensitive to a change in their VRs. An upgrade of their VRs in the foreseeable future is not Fitch's base case scenario. A&T Bank's niche profile and dependence on volatile Libyan, Middle Eastern and African economies makes it difficult to envisage an upgrade. Neither Anadolubank nor Sekerbank are displaying any notable improvement in its key financial metrics to suggest likely upward pressure on the VRs. The most likely source of downside pressure on Sekerbank's VR is a weakening of asset quality, particularly among the portfolio of smaller companies which may find it more difficult to compete as economic conditions remain tough, and amid continued capital ratio erosion. The Outlooks on all other ratings is Stable. The IDRs, National and Support Ratings of Alternatifbank, BankPozitif and Turkland Bank are sensitive a change in the IDRs of their parents and/or a change of strategy at group level, thereby reducing their propensity to support their subsidiaries. The Negative Outlook on Turkland Bank's Long-term rating mirrors that of Arab Bank PLC (see Fitch Downgrades Arab Bank PLC to 'BBB-'; Negative Outlook dated 9 January 2014, available at www.fitchratings.com). The Outlooks on the remaining support-driven Long-term ratings is Stable. Alternatifbank's VR may be upgraded on improvements in its core capitalisation and slower NPL generation. Alternatifbank's and Turkland Bank's VRs are further sensitive to the banks establishing and maintaining a track record of sustainable growth and profitability, leading to improved internal capital generation. The RWP on Tekstilbank's Long and Short-term IDRs, National Rating and Support Rating will be resolved upon completion of the change of ownership. If the acquisition is successful, the bank will likely see a multi-notch upgrade of its Long-term IDRs, National and Support Ratings. The bank's Long-term foreign currency IDR will most likely be upgraded to 'BBB', Turkey's Country Ceiling. KEY RATING DRIVERS AND SENSITIVITIES - ALTERNATIF FINANSAL KIRALAMA The ratings of Alternatif Leasing are equalised with those of its parent, Alternatifbank. The bank fully owns the leasing company which shares the same brand, distribution channels, board members and membership of key committees. Alternatif Leasing's ratings are sensitive to a change in its parent's ratings. The rating actions are as follows: Alternatifbank A.S. Long-term FC IDR affirmed at 'BBB'; Stable Outlook Long-term LC IDR affirmed at 'BBB+'; Stable Outlook Short-term FC IDR upgraded to 'F2' from 'F3' Short-term LC IDR affirmed at 'F2' Viability Rating downgraded to 'b+' from 'bb' Support Rating affirmed at '2' National Long-term Rating affirmed at 'AAA(tur)' Stable Outlook Anadolubank A.S. Long-term FC and LC IDR downgraded to 'BB' from 'BB+'; Stable Outlook Short-term FC and LC IDR affirmed at 'B' Viability Rating downgraded to 'bb' from 'bb+' Support Rating affirmed at '5' Support Rating Floor affirmed at 'No Floor' National Long-term Rating downgraded to 'AA-(tur)' from 'AA(tur)'; Stable Outlook Arap Turk Bankasi A.S. Long-term FC and LC IDR affirmed at 'BB-'; Stable Outlook Short-term FC and LC IDR affirmed at 'B' Viability Rating affirmed at 'bb-' Support Rating affirmed at '5' Support Rating Floor affirmed at 'No Floor' National Long-term Rating affirmed at 'A+(tur)'; Stable Outlook BankPozitif Kredi ve Kalkinma Bankasi A.S. Long-term FC and LC IDR: affirmed at 'BBB-'; Stable Outlook Short-term FC and LC IDR affirmed at 'F3' Viability Rating affirmed at 'b+' Support Rating affirmed at '2' National Long-term Rating affirmed at 'AAA(tur)'; Stable Outlook Senior unsecured debt: affirmed at 'BBB-' Senior unsecured debt issued out of Commerzbank International S.A.: affirmed at 'BBB-' Sekerbank T.A.S. Long-term FC and LC IDR affirmed at 'BB-'; Outlook changed to Negative from Stable Short-term FC and LC IDR affirmed at 'B' Viability Rating affirmed at 'bb-' Support Rating affirmed at '5' Support Rating Floor affirmed at 'No Floor' National Long-term Rating affirmed at 'A+(tur)'; Outlook changed to Negative from Stable Tekstil Bankasi A.S. Long-term FC and LC IDR: 'B+'; Rating Watch Positive Maintained Short-term FC and LC IDR: 'B'; Rating Watch Positive Maintained Viability Rating affirmed at 'b+' Support Rating: '5'; Rating Watch Positive Maintained Support Rating Floor affirmed at 'No Floor' National Long-term Rating: 'A(tur)'; Rating Watch Positive Maintained Turkland Bank A.S. Long-term FC and LC IDR affirmed at 'BB'; Negative Outlook Short-term FC and LC IDR affirmed at 'B' Viability Rating affirmed at 'b+' Support Rating affirmed at '3' National Long-term Rating affirmed at 'AA-(tur)'; Negative Outlook Alternatif Finansal Kiralama A.S. Long-term FC IDR affirmed at 'BBB'; Stable Outlook Long-term LC IDR affirmed at 'BBB+'; Stable Outlook Short-term FC IDR upgraded to 'F2' from 'F3' Short-term LC IDR affirmed at 'F2' Support Rating affirmed at '2' National Long-term Rating affirmed at 'AAA(tur)' Negative Outlook Contact: Primary Analysts Janine Dow (Sekerbank, Tekstil Bankasi, Arap Turk Bankasi, Alternatif Finansal Kiralama) Senior Director +44 203 530 1464 Fitch Ratings Limited 30 North Colonnade London E14 5GN Banu Cartmell (Alternatifbank, BankPozitif, Anadolubank, Turkland Bank) Director +44 203 530 1109 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analysts Keranka Dimitrova (Sekerbank, Tekstil Bankasi, Alternatif Finansal Kiralama) Associate Director +44 203 530 1223 Radu Gheorghiu (Alternatifbank, Turkland Bank, Anadolu Bank, Bank Pozitif) Analyst +44 203 530 1253 Fitch Ratings Limited 30 North Colonnade London E14 5GN Committee Chairperson James Watson Managing Director +7495 956 9901 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, Global Financial Institutions Rating Criteria, dated 12 January 2014, are available at www.fitchratings.com Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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