November 30, 2012 / 3:56 PM / in 5 years

TEXT-Fitch upgrades 3 state-owned Turkish banks viability ratings

Nov 30 - Fitch Ratings has upgraded T.C. Ziraat Bankasi A.S., Turkiye Halk
Bankasi A.S. (Halkbank) and Turkiye Vakiflar Bankasi T.A.O.'s
 (Vakifbank) Viability Ratings (VR) to 'bbb-' from 'bb+'. Vakifbank's
subordinated debt rating has also been upgraded to 'BB+' from 'BB'.

Fitch had upgraded these banks Long-term and Short-term Issuer Default Ratings
(IDRs), National Long-term Ratings, Support Ratings and Support Rating Floors
following the upgrade of the Republic of Turkey's Long-term foreign currency and
local currency IDRs on 5 November 2012 (see 'Fitch Upgrades Nine Turkish Banks
Following Sovereign Upgrade' dated 13 November 2012 at
Fitch stated in that release that the agency would also review Ziraat, Halkbank
and Vakifbank's VRs, and also added that any change in Vakifbank's VR would
likely result in a change in subordinated debt rating. In the next few weeks,
Fitch also intends to review the VRs and IDRs of the four largest
privately-owned banks, namely Turkiye Is Bankasi A.S., Turkiye Garanti Bankasi
A.S., Akbank T.A.S. and Yapi ve Kredi Bankasi A.S.

The upgrades of the VRs reflect 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, which is
reflected in the upgrade of Turkey to an investment grade rating. The sovereign
credit profile is important for the stand-alone assessment of the state-owned
banks given their exposure to the domestic economy including significant
investments in government debt (in particular in the case of Ziraat) and close
association with the authorities, which could result in more limited access to
funding in case of heightened sovereign stress (foreign borrowings have become
more significant for Halkbank and Vakifbank compared with Ziraat, but are still
moderate which is reflected in a loan/deposit ratio of around 100%).

The VRs also consider the banks' broad and stable franchises, their generally
sound management and governance, and their solid financial metrics in terms of
capitalisation, asset quality, performance, liquidity and funding, which are
comparable with other banks rated 'bbb-' both domestically and internationally.
The still moderate level of systemic risks and imbalances in the broader Turkish
banking system is also a supporting factor for the ratings.

Ziraat's VR is supported by its extensive retail franchise. The bank is a market
leader in consumer lending and agriculture loans, and its strong funding
profile, stemming from its core deposit base, is a key strength and underpins
the liquidity position. Ziraat's asset quality, with an impaired loans ratio of
2.6% at end-Q312, is marginally better than the banking system average of 2.9%.
Its Fitch Core Capital ratio, at 16.3% at end-Q312, is one of the strongest in
the system. Performance is solid, supported by high loan spreads, although the
asset mix, with a still high proportion of government securities, weighs
somewhat on margins.

Halkbank's VR is supported by its sustained strong core profitability, driven by
better margins, solid efficiency and lower credit impairment charges than at
most peers. The bank's solid asset quality, especially given its traditional
focus in the SME segment, is a considerable rating strength. Customer deposits
are the main funding source and Halkbank enjoys stable state deposits as well as
certain guarantees from the state on its external borrowings. The Fitch Core
Capital ratio was a solid 13.0% at end-Q312.

Vakifbank's VR is supported by its established franchise in commercial banking,
and its expansion into SME and retail lending has been reasonably managed to
date. Operating performance, although somewhat lagging immediate peers, is
solid, and supported by strong loan yields. Reported asset quality is slightly
weaker than immediate peers, with an impaired loan ratio of 3.3% at end-Q312,
but this in part reflects the absence of write-offs/sales, and is supported by a
high specific loan loss coverage ratio of 94%, among the highest in the system.
Customer deposits are the main source of funding and core state deposits (that
may be exclusively deposited to the state banks under the bank's definition)
comprise 16% of these. The Fitch Core Capital ratio was a solid 12.9% at


The VRs could be upgraded in case of further improvements in the operating
environment and the continued reduction of sovereign risk, reflected in another
upgrade of Turkey's ratings. However, the latter is not currently anticipated.
The VRs could be downgraded if weaker economic performance or mismanagement of
ongoing loan growth leads to a deterioration of asset quality, performance and

Additional information is available on

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, is available at

Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
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