Fitch Revises 20 Turkish Banks' Outlooks to Stable on Sovereign Change

Garanti Faktoring

12/11/2019 11:43

(The following statement was released by the rating agency)


Link to Fitch Ratings' Report(s): 

https://www.fitchratings.com/site/re/10101405

Fitch Ratings-London-November 12: Fitch Ratings has revised the Outlooks to 
Stable from Negative on 20 Turkish banks, while affirming their Issuer Default 
Ratings (IDRs). Fitch has also revised the Outlooks on the Long-Term 
Local-Currency (LTLC) IDRs of Akbank T.A.S. (Akbank) and Turkiye Is Bankasi 
(Isbank) to Stable from Negative. 

In addition, the ratings of those banks' financial subsidiaries driven by 
institutional support are affirmed and their Outlooks revised to Stable. 

The rating actions follow the revision of the Outlook on Turkey's Long-Term IDR 
to Stable from Negative (see 'Fitch Revises Turkey's Outlook to Stable; Affirms 
at 'BB-' dated 1 November 2019 at www.fitchratings.com). The actions reflect (i) 
reduced downside risks to the sovereign's ability to support banks, and (ii) the 
lower near-term likelihood of a sharp deterioration in Turkey's external 
finances, and therefore of government intervention in the banking system.

The Viability Ratings (VRs) of the banks under review, and of other Fitch-rated 
Turkish banks with IDRs driven by VRs, are unaffected by the sovereign Outlook 
change. This reflects our view that risks to banks' stand-alone credit profiles 
remain heightened and on the downside. This is due to still challenging market 
conditions and ensuing pressures on financial profiles, even though short-term 
risks have abated somewhat alongside Turkey's progress in rebalancing and 
stabilising the economy.  

Fitch will continue to monitor developments surrounding banks' asset quality, 
capital positions, profitability and foreign-currency (FC) liquidity in light of 
operating environment developments. Increased market stability could mitigate 
downside risks to banks' credit profiles and reduce downward pressure on VRs, 
particularly where capital and liquidity buffers are sufficient to absorb 
significant market stresses.   

Fitch has maintained the Rating Watch Negative (RWN) on Turkiye Halk Bankasi's 
ratings following the announcement on 15 October by the U.S. Department of 
Justice that the bank had been charged with fraud, money laundering, and 
sanctions offenses (see 'Fitch Places Halk on Rating Watch Negative' at 
www.fitchratings.com).

KEY RATING DRIVERS

IDRS, DEBT RATINGS, SUPPORT RATINGS AND SUPPORT RATINGS FLOORS (SRF) OF 
STATE-OWNED TURKISH BANKS AND DEVELOPMENT BANKS

T.C. Ziraat Bankasi A.S. (Ziraat; LTFC IDR 'B+'/Stable)

Turkiye Vakiflar Bankasi A.S. (Vakifbank; LTFC IDR 'B+' /Stable)

Vakif Katilim Bankasi A.S. (Vakif Katilim; LTFC IDR 'B+'/Stable)

Turkiye Sinai Kalkinma Bankasi A.S. (TSKB; LTFC IDR 'B+'/Stable)

Turkiye Ihracat Kredi Bankasi A.S. (Turk Eximbank; LTFC IDR 'B+' /Stable)

Turkiye Kalkinma Bankasi A.S. (TKYB; LTFC IDR 'BB-'/Stable)

Emlak Katilim Bankasi A.S. (Emlak Katilim; LTFC IDR 'B+'/Stable)

Turkiye Halk Bankasi A.S. (Halk; LTFC IDR 'B+'/RWN) 

The Outlooks on the Long-Term Foreign Currency (LTFC) IDRs of Ziraat, Vakifbank, 
TSKB, Turk Eximbank, Emlak and Vakif Katilim are revised to Stable from Negative 
mirroring the Outlook on the sovereign, reflecting reduced risks to the 
sovereign's ability to provide support, in case of need. 

The SRFs of the state-owned commercial banks (Ziraat, Halk, Vakifbank, Vakif 
Katilim, Emlak Katilim), Turk Eximbank, and of privately-owned development bank 
TSKB, are affirmed at 'B+'. This reflects a high government propensity to 
support these banks, given their majority state ownership (except for TSKB), 
systemic importance (Ziraat, Halk, Vakifbank), policy roles (Ziraat, Halk, TSKB, 
Turk Eximbank), significant state-related funding (including state-guaranteed in 
the case of TSKB) and the record of support for state-owned banks. The 
authorities have shown a strong commitment to support the state banks as 
evidenced by capital increases in September 2018 and April 2019. The one notch 
difference between the sovereign rating and the banks' SRFs reflects the limited 
ability of the authorities to provide support in FC given the sovereign's modest 
net FC reserves. 

The LTFC IDRs of Ziraat, Vakifbank and TSKB - which were previously driven by 
their VRs and underpinned by their SRFs - are now driven by sovereign support. 

The LTLC IDRs of the state-owned commercial banks and the development banks 
continue to be equalised with the 'BB-' sovereign rating, one notch above their 
LTFC IDRs, reflecting the stronger ability of the sovereign to provide support 
in local currency (LC). The revision of the Outlook on these ratings to Stable 
mirrors that on the sovereign.

The ratings of TKYB continue to be equalised with the sovereign's, reflecting 
its small size relative to sovereign resources and still largely 
treasury-guaranteed funding base. 

The RWN on Halk's SRF and support-driven ratings have been maintained. This 
reflects (i) uncertainty about the severity and nature of punitive measures, if 
any, to be taken against the bank as a result of the U.S. investigations; (ii) 
significant geopolitical tensions between Turkey and the U.S., which could 
escalate and raise uncertainty on the authorities' ability and propensity to 
provide sufficient and timely support in case a material fine or other punitive 
measures are imposed on Halk, and (iii) significant (49%) non-state ownership of 
the bank, which may complicate the prompt provision of solvency support, if 
required.

LTLC IDRS OF AKBANK, ISBANK, AK FINANSAL KIRALAMA, IS FINANSAL KIRALAMA; SRFS OF 
AKBANK AND ISBANK

Akbank TAS (LTFC IDR; 'B+'/Negative)

Turkiye Is Bankasi A.S. (LTFC IDR; 'B+'/Negative)

Ak Finansal Kiralama (LTFC IDR 'B+' /Negative)

Is Finansal Kiralama (LTFC IDR 'B+'/ Negative)

The SRFs of privately-owned Akbank and Isbank are affirmed at 'B', two notches 
below the sovereign LTFC IDR, and at the level of the domestic systemically 
important bank (D-SIB) SRF for Turkish banks. This reflects their systemic 
importance, but also their private ownership and the Turkish authorities' 
limited ability to provide support in FC, given Turkey's modest net FC reserves. 


The LTFC IDRs of both banks are driven by their VRs, which are one notch above 
their SRFs, and are therefore unaffected by this rating action. The banks 
consequently remain on Negative Outlook, reflecting downside risks to standalone 
profiles given exposure to Turkish operating environment risks.  

The LTLC IDRs of Akbank and Isbank are affirmed at 'B+' and the Outlooks revised 
to Stable from Negative, following the change in sovereign outlook. This 
reflects Fitch's view of potential support for the banks in LC in case of need. 
As a result, their LTLC IDRs are now driven by state support. 

The affirmation of the LTLC IDRs of the subsidiaries of Akbank and Isbank mirror 
the rating actions and Outlook revisions on their respective parents.

IDRS, DEBT RATINGS AND SUPPORT RATINGS OF FOREIGN-OWNED BANKS

Turkiye Garanti Bankasi A.S. (Garanti BBVA; LTFC IDR 'B+'/Stable)

Yapi ve Kredi Bankasi A.S. (YKB; LTFC IDR 'B+'/Stable)

Turk Ekonomi Bankasi (TEB; LTFC IDR 'B+'/Stable)

QNB Finansbank A.S. (LTFC IDR 'B+'/Stable)

ING Bank A.S. (LTFC IDR 'B+'/Stable)

Kuveyt Turk Katilim Bankasi (Kuveyt Turk; LTFC IDR 'B+'/Stable)

Alternatifbank A.S. (Alternatifbank; LTFC IDR 'B+'/Stable)

Turkiye Finans Katilim Bankasi (TFKB; LTFC IDR 'B+'/Stable)

Burgan Bank A.S. (Burgan Bank Turkey; LTFC IDR 'B+'/Stable)

ICBC Turkey Bank A.S. (LTFC IDR 'B+'/Stable)

BankPozitif Kredi ve Kalkinma Bankasi (BankPozitif; LTFC IDR 'B+'/Stable)

Denizbank A.S. (LTFC IDR 'B+'/Stable)

The revision of the Outlooks on the foreign-owned banks' Long-Term IDRs to 
Stable from Negative mirrors the sovereign Outlook change. This reflects the 
reduced risk of a stress in Turkey's external finances and, as a result, the 
ensuing lower probability of government intervention in the banking sector. 
Turkey's high external funding requirement creates a significant incentive to 
retain market access and avoid capital controls, in our view. However in case of 
marked deterioration in the country's external finances, some form of 
intervention in the banking system that might impede the banks' ability to 
service their FC obligations would become more likely.

The LTFC IDRs and FC senior debt ratings of these foreign-owned banks are 
affirmed at 'B+'. These ratings are driven by potential institutional support 
based on their strategic importance, to varying degrees, for their parents, 
integration, roles within their respective groups and, for some, common 
branding. The banks are rated one notch below the sovereign LTFC IDR, reflecting 
Fitch's view that in case of marked deterioration in Turkey's external finances, 
the risk of government intervention in the banking sector would be higher than 
that of a sovereign default. 

The  LTLC IDRs of these banks are rated one notch above their LTFC IDRs, 
reflecting our view of a lower likelihood of government intervention that would 
impede the banks' ability to service obligations in LC.

SUBORDINATED DEBT RATINGS

The subordinated notes ratings of YKB, Kuveyt Turk, Garanti and Alternatifbank 
are notched down once from their support-driven IDRs and have been affirmed in 
line with their anchor ratings. The notching in each case includes one notch for 
loss severity and zero notches for non-performance risk (relative to the anchor 
ratings). 

SUBSIDIARY RATINGS 

Alternatif Finansal Kiralama AS (LTFC IDR 'B+'/Stable)

Deniz Finansal Kiralama (LTFC IDR 'B+'/Stable)

Joint-Stock Company Denizbank Moscow (LTFC IDR 'B+'/Stable)

Garanti Faktoring (LTFC IDR 'B+'/Stable)

Garanti Finansal Kiralama (LTFC IDR 'B+'/Stable)

QNB Finans Finansal Kiralama A.S. (LTFC IDR 'B+'/ Stable)

QNB Finans Faktoring A.S. (LTFC IDR 'B+'/ Stable)

Yapi Kredi Finansal Kiralama (LTFC IDR 'B+'/ Stable)

Yapi Kredi Faktoring (LTFC IDR 'B+'/ Stable)

Yapi Kredi Yatirim Menkul Degerler (LTFC IDR 'B+'/Stable)

Ziraat Katilim (LTFC IDR 'B+' /Stable)

Subsidiary ratings are equalised with those of parent banks, reflecting their 
strategic importance to, and integration within, their respective groups. The 
affirmations of the LTFC IDRs of the subsidiaries of foreign-owned banks 
(Alternatifbank, Garanti, QNB Finansbank and YKB) and Ziraat, mirror the rating 
actions and Outlook revisions on their respective parents. The LTFC and LTLC 
IDRs together with their Outlooks for Denizbank Moscow are equalised with 
Denizbank's LTFC IDR as the source of support would be in the form of FC.

NATIONAL RATINGS 

The National Ratings of all issuers are unaffected by the sovereign rating 
action, reflecting our view that their creditworthiness in LC relative to other 
Turkish issuers has not changed.

RATING SENSITIVITIES

STATE-OWNED COMMERCIAL AND DEVELOPMENT BANKS; AKBANK AND ISBANK  

The IDRs and senior debt ratings of Ziraat, Halk, Vakifbank, Vakif Katilim, 
Emlak Katilim TSKB, Turk Eximbank and TKYB, and the LTLC IDRs of Akbank and 
Isbank, could change if Fitch concludes that there is a change in the ability or 
propensity of the sovereign to provide support, in case of need. However, the 
LTFC IDRs of Ziraat, Vakifbank and TSKB, and the LTLC IDRs of Akbank and Isbank, 
would only be downgraded if the banks' 'b+' VRs are also downgraded. 

Halk's support-driven ratings could be downgraded if the bank does not receive 
sufficient and timely support to offset the impact of any fine or other punitive 
measures imposed as a result of the U.S investigation. Its IDRs could also be 
downgraded, or its SRF revised lower, if Fitch believes that potential support 
from the Turkish authorities, even in the absence of disciplinary actions, 
becomes less reliable.

The RWN on Halk's support-driven ratings could be removed if Fitch believes 
there is a clear commitment by the Turkish authorities to provide support, in 
case of need, to the bank to offset potential punitive actions. However, this 
would be assessed relative to the sovereign's ability to provide support in FC, 
which is constrained by limited FX reserves.

FOREIGN-OWNED BANKS

The Long-Term IDRs, Support Ratings and senior debt ratings of the foreign-owned 
banks are sensitive to Turkey's sovereign rating and a change in Fitch's view of 
the risk of government intervention in the banking sector. A change in the 
sovereign rating or Outlook would likely lead to similar actions on these banks. 


The banks' support-driven ratings are also sensitive to our view of 
shareholders' ability and propensity to provide support to the subsidiaries, in 
case of need. For banks with VRs at the level of their FC IDRs, a reduced 
likelihood of institutional support would only lead to a downgrade of the banks' 
ratings if their VRs are also downgraded.  

SUBORDINATED DEBT RATINGS 

Subordinated debt ratings are primarily sensitive to changes in banks' anchor 
ratings, namely the Long-Term IDRs in the case of YKB, Garanti, Kuveyt Turk and 
Alternatifbank.  

These ratings are also sensitive to a change in notching from the anchor ratings 
due to a revision in Fitch's assessment of the probability of the notes' 
non-performance risk or of loss severity in case of non-performance.

SUBSIDIARY RATINGS

The ratings of these entities are sensitive to changes in the Long-Term IDRs of 
their parents.

 

ENVIRONMENT, SOCIAL AND GOVERNANCE SCORES 

Unless otherwise disclosed in this section, the highest level of ESG credit 
relevance is a score of 3. This means ESG issues are credit-neutral or have only 
a minimal credit impact on the entity, either due to their nature or to the way 
in which they are being managed by the entity. For more information on our ESG 
Relevance Scores, visit www.fitchratings.com/esg.

Ziraat, Vakifbank and Vakif Katilim have a governance structure relevance score 
of '4' in contrast to a typical relevance influence score of '3' for comparable 
banks, reflecting potential government influence over the board's strategy and 
effectiveness in the challenging Turkish operating environment. Fitch will 
closely monitor the corporate governance structure. 

Halk has been assigned a governance structure relevance score of '5' in contrast 
to a typical relevance influence score of '3' for comparable banks. This 
reflects the elevated legal risk of a large fine, which drives the RWN. It also 
reflects potential government influence over the board's strategy and 
effectiveness in the challenging Turkish operating environment.

In addition, Islamic banks need to ensure compliance of their entire operations 
and activities with sharia principles and rules. This entails additional costs, 
processes, disclosures, regulations, reporting and sharia audit. This results in 
a governance structure relevance score of '4' for all banks (in contrast to a 
typical ESG relevance score of '3' for comparable conventional banks), which has 
a negative impact on the banks' credit profile in combination with other 
factors. In addition Islamic banks have an exposure to social impacts relevance 
score of '3' (in contrast to a typical ESG relevance score of '2' for comparable 
conventional banks), which reflects that Islamic banks have certain sharia 
limitations embedded in their operations and obligations, although this only has 
a minimal credit impact on the entities.

Data Adjustment: An adjustment has been made in Fitch's financial spreadsheets 
for Akbank, Isbank, Garanti, QNB Finansbank, and TSKB that has impacted Fitch's 
core and complimentary metrics. Fitch has taken a loan classified as a financial 
asset measured at fair value through profit and loss in the banks' financial 
statements and reclassified it under gross loans as we believe this is the most 
appropriate line in Fitch spreadsheets to reflect this exposure.

Contact: For the respective analytical contacts, see the associated Rating 
Action Report. 

Committee Chairperson 

Mark Young

Managing Director

 +44 20 3530 1318 

Media Relations: Louisa Williams, London, Tel: +44 20 3530 2452, Email: 
louisa.williams@thefitchgroup.com.

Additional information is available on www.fitchratings.com

Applicable Criteria 

Bank Rating Criteria (pub. 12 Oct 2018)

https://www.fitchratings.com/site/re/10044408

National Scale Ratings Criteria (pub. 18 Jul 2018)

https://www.fitchratings.com/site/re/10038626

Non-Bank Financial Institutions Rating Criteria (pub. 12 Oct 2018)

https://www.fitchratings.com/site/re/10044407

Short-Term Ratings Criteria (pub. 02 May 2019)

https://www.fitchratings.com/site/re/10073011

Sukuk Rating Criteria (pub. 22 Jul 2019)

https://www.fitchratings.com/site/re/10082827

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https://www.fitchratings.com/site/dodd-frank-disclosure/10101400

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https://www.fitchratings.com/site/pr/10101400#solicitation

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https://www.fitchratings.com/regulatory

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