Fitch Affirms 6 Small Turkish Banks; One on RWP
The Outlook on Sekerbank has been revised to Stable from Negative; the Outlook on Turkland remains Negative. The Outlooks on the other banks are Stable.
Fitch has also maintained the ratings of Tekstil Bankasi (Tekstilbank) on Rating Watch Positive. Alternatifbank's leasing subsidiary, Alternatif Finansal Kiralama A.S. has also been affirmed.
A full list of rating actions is at available the end of this rating action commentary.
KEY RATING DRIVERS AND SENSITIVITIES - IDRS, NATIONAL RATINGS, SUPPORT RATINGS
Institutional support drives the IDRs, National ratings and Support ratings of Alternatifbank (74.25% owned by Commercial Bank of Qatar, CBQ, A/Stable) and its leasing subsidiary Alternatif Finansal Kiralama (100%% owned by Alternatifbank), BankPozitif (around 70% controlled by Israel's Bank Hapoalim, A-/Stable) and Turkland Bank (50% owned by Arab Bank PLC, BBB-/Negative).
Fitch views Alternatifbank as a strategically important subsidiary for its parent institution; however, its Long-term foreign currency Issuer Default Rating (IDR) is constrained by Turkey's 'BBB' Country Ceiling. The ratings of Alternatif Finansal Kiralama are equalised with those of Alternatifbank, reflecting its high integration with the parent. The IDRs of Alternatifbank and Alternatif Finansal Kiralama could be upgraded or downgraded in line with a revision in the same direction of the Country Ceiling. The ratings could also be downgraded in case of a multi-notch downgrade of CBQ.
Fitch also views Turkland Bank as a strategically important subsidiary for Arab Bank, but its ratings are notched down twice from those of the parent due to the latter's only 50% ownership, which in some circumstances may moderately limit the probability of support, in Fitch's view. The Negative Outlook on Turkland reflects that on Arab Bank, and a downgrade of the parent would likely result in a downgrade of the subsidiary. The remaining 50% ownership is held by Lebanon's BankMed Sal.
Fitch views BankPozitif as being of limited importance to Hapoalim because of its small size and limited development plans, and the bank's Long-term IDRs are therefore three notches lower than those of its parent. BankPozitif's IDRs are sensitive to changes in the IDRs of Hapoalim and in the strategic importance of the subsidiary for the parent. BankPozitif's National rating has been downgraded to 'AA+ (tur)' from 'AAA(tur)' to bring it in line with peers with the same IDRs.
The IDRs and National ratings of Anadolubank, A&T Bank, Sekerbank and Tekstilbank are driven by their Viability Ratings (VRs). The RWP on Tekstilbank's IDRs, National rating and Support rating reflects the potential for these ratings to be upgraded if Industrial and Commercial Bank of China (ICBC; A/Stable) completes the acquisition of a 75.5% stake in the bank. The acquisition is awaiting final regulatory approval and expected to be completed in 1H15. Fitch will resolve the Watch on the bank's ratings if and when ownership changes. Tekstilbank's Long-term foreign currency IDR will most likely be upgraded to 'BBB', Turkey's Country Ceiling, upon completion of the acquisition.
The IDRs of Anadolubank, A&T Bank and Sekerbank are sensitive to changes in their VRs. The banks' '5' Support ratings and 'No Floor' Support Rating Floors reflect Fitch's view that support cannot be relied upon either from shareholders or from the Turkish authorities. Potential parental support is not factored into the ratings of either A&T Bank, majority-owned by The Libyan Foreign Bank, or Sekerbank, around 22% owned by Kazakhstan's JSC Sovereign Wealth Fund Samruk-Kazyna (SK, BBB+/Stable). SK provides little strategic or operational support to the bank. The banks' Support ratings could be upgraded in case of acquisition by a highly rated institution.
KEY RATING DRIVERS AND SENSITIVITIES - VIABILITY RATINGS
The VRs of the seven banks reflect their limited franchises, small absolute size, and limited competitive advantages. However, the ratings also consider the banks' currently generally reasonable financial metrics and the largely supportive near-term economic outlook.
The higher VRs of Anadolubank (bb) and Sekerbank (bb-), relative to peers, reflect their larger and somewhat more established franchises and, for Anadolubank, a track record of better asset quality and performance. The revision of the Outlook on Sekerbank to Stable from Negative reflects reduced risk of deterioration of the bank's asset quality and profitability, and a stabilisation of capital ratios.
A&T Bank's 'bb-' VR reflects its long track record of small credit losses and solid financial metrics; however, the rating is constrained by significant exposure to Libyan risks. The 'b+' VRs of the other four banks are constrained by their limited franchises and by weak capitalisation (Alternatifbank), rapid growth (Turkland), uncertainty about future strategy pending the change in ownership (Tekstilbank) and wholesale funding dependence and frequent strategic changes (BankPozitif).
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 finance 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.
Operating conditions in 2015 are expected to improve as Fitch expects GDP to grow by 3.5% (2014: around 2.7%) and local interest rates have fallen from the highs reached at the outset of 2014. This should stimulate credit demand. Loan growth expectations for the seven banks under review are varied, dictated by strategic targets, business niche and timing of capital injections, among other drivers.
Fairly ambitious growth targets are set for Alternatifbank and Turkland Bank, in line with shareholders' objectives. The remaining commercial banks are targeting loan growth of around 15%-20%, in line with our expectations for the sector.
The average impaired loan/total loan ratio for the banks rose to around 5% at end-3Q14 (1Q14: 4%). Single name concentration risk is fairly high across all banks, reflecting their moderate size and customer base. Anadolubank's impaired loans ratio of 3.2% was somewhat lower than peers, while A&T Bank's was a low 1.1%.
Fitch core capital (FCC)/weighted risks ratios are more moderate than peers at Alternatifbank (9% at end-3Q14) and Sekerbank (11.1%). Alternatifbank's capitalisation is supported by regular injections from CBQ, but likely to remain moderate given growth plans. Sekerbank's capital ratio has stabilised after falling in 2013, and equity injections of a planned TRY125m (0.8% of risk-weighted assets) by end-1Q15 should provide moderate support; management's commitment to operate with a regulatory capital adequacy ratio of around 13.5% is positive.
Anadolubank's FCC/weighted risks ratio, at around 14%, is solid, considering loan quality and management's expectations that loan loss reserve cover should be around 75%, higher than at peers. A&T Bank's FCC ratio of 12.5% is reasonable, although the bank's asset quality could be exposed to tail risks given Libyan-related exposures. The relatively high 17%-18% FCC ratios of Turkland Bank, Tekstilbank and BankPozitif are positive for their credit profiles.
Funding and liquidity ratios are in general reasonable at each of the banks. However, risks related to short-term foreign currency wholesale funding are somewhat greater at Anadolubank, Sekerbank and Tekstilbank, in Fitch's view. Foreign-owned peers should be able to rely on liquidity support from parent institutions in case of need.
Upside potential for the VRs of Anadolubank, Sekerbank and A&T Bank is limited, given their already somewhat higher level and the specific franchises of Sekerbank and A&T. However, a strengthening of key financial metrics and an extended track record of reasonable performance could put upward pressure on Sekerbank's VR.
The 'b+' VRs of Alternatifbank, Tekstilbank and Turkland Bank could be upgraded if the banks strengthen capitalisation (Alternatifbank) and franchise (Tekstilbank, Turkland) without growing excessively fast. The 'b+' VR of BankPozitif is unlikely to be upgraded, given its wholesale funding dependence and niche franchise.
The VRs of all seven banks could be downgraded in case of a significant deterioration in asset quality. A sharp tightening of liquidity could also result in pressure on the VRs of Anadolubank, Sekerbank and Tekstilbank.
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 affirmed at 'F2'
Short-term LC IDR affirmed at 'F2'
Viability Rating affirmed at 'b+'
Support Rating affirmed at '2'
National Long-term Rating affirmed at 'AAA(tur)' Stable Outlook
USD250m senior notes guaranteed by Commercial Bank of Qatar affirmed at 'A'
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 affirmed at 'F2'
Short-term LC IDR affirmed at 'F2'
Support Rating affirmed at '2'
National Long-term Rating affirmed at 'AAA(tur)' Stable Outlook
Anadolubank A.S.
Long-term FC and LC IDRs affirmed at 'BB' ; Stable Outlook
Short-term FC and LC IDRs 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 'AA-(tur)' ; Stable Outlook
Arap Turk Bankasi A.S.
Long-term FC and LC IDRs affirmed at 'BB-'; Stable Outlook
Short-term FC and LC IDRs 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 IDRs: affirmed at 'BBB-'; Stable Outlook
Short-term FC and LC IDRs affirmed at 'F3'
Viability Rating affirmed at 'b+'
Support Rating affirmed at '2'
National Long-term Rating downgraded to 'AA+(tur)' from '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 IDRs affirmed at 'BB-'; Outlook revised to Stable from Negative
Short-term FC and LC IDRs 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 revised to Stable from Negative
Tekstil Bankasi A.S.
Long-term FC and LC IDRs 'B+'; Rating Watch Positive maintained
Short-term FC and LC IDRs: '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 IDRs affirmed at 'BB'; Negative Outlook
Short-term FC and LC IDRs affirmed at 'B'
Viability Rating affirmed at 'b+'
Support Rating affirmed at '3'
National Long-term Rating affirmed at 'AA-(tur)'; Negative Outlook
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