Fitch Affirms Turkey's Development Banks at 'BBB-'; Outlook Stable
KEY RATING DRIVERS
IDRS, NATIONAL RATINGS AND SENIOR DEBT
The Long-term IDRs of TSKB, TKB and Turk Eximbank are equalised with those of the Turkish sovereign. This reflects the policy roles of all three banks, the majority state ownership of TKB and Turk Eximbank, and government support of the banks' funding. Treasury-guaranteed funding comprises 98.5% of TKB's liabilities and 59% at TSKB and Central Bank facilities make up 61% of Turk Eximbank's liabilities. As a result of their policy roles and funding profiles, Fitch has not assigned Viability Ratings (VRs) to these banks.
The three banks jointly make up a modest share of the Turkish banking sector assets (3% at end-1H15). Turk Eximbank and TKB are development institutions with primary policy roles. TKB focuses on long-term development financing while Turk Eximbank is the country's official export credit agency. TKB's strategic objective is to achieve sustainable growth by increasing employment, income and welfare, primarily in less developed regions, while Turk Eximbank is mandated to increase, and diversify, Turkish exports.
The Turkish Treasury guarantees most funding at TKB and provides guarantees for Turk Eximbank's funding if required. The latter also enjoys privileges in relation to the compensation of losses suffered as a result of political risks, and is exempt from corporate taxes and loan loss reserve requirements. The Board of Directors at TKB is dominated by government representatives and approves a high majority of the loans. However, state officials form only a minority on the Boards of Directors of Turk Eximbank and TSKB.
TSKB continues to perform its public mission, despite its 50% private-ownership by Turkiye Is Bankasi (BBB-/Stable). In Fitch's opinion, TSKB's long-lasting policy role is reinforced by its expertise in development lending, in particular in the energy sector. However, negative rating pressure has increased at TSKB following a significant recent reduction in the proportion of Treasury-guaranteed funding, which is a key rating sensitivity for Fitch.
TSKB has grown actively in recent years (28% CAGR in 1H15-2013), largely funded by securities issues (two eurobonds since 2014) and other unguaranteed long-term foreign currency funding. As a result of this, and notwithstanding still significant volumes of new guaranteed facilities, the proportion of Treasury-guaranteed funding has declined gradually, to 59% of liabilities at end-1H15, from 71% at end-2013. Fitch views this as a still high proportion, and management does not envisage this decreasing significantly in the near- to medium-term. However, a material further reduction could result in negative rating action on TSKB.
RATING SENSITIVITIES
IDRS, SUPPORT RATING, SUPPORT RATING FLOOR, NATIONAL RATINGS AND SENIOR DEBT
The ratings of TKB, TSKB and Turk Eximbank are primarily sensitive to a change in Turkey's sovereign ratings.
TSKB's ratings are in addition sensitive to a continued reduction in the proportion of state-guaranteed debt, which is a key driver of Fitch's view of support, given the bank's private ownership. Such a reduction, although not Fitch's base case, could result in a downgrade of the bank. However, any downgrade would likely be limited to one notch, to 'BB+'. This is because Fitch believes TSKB would likely also receive shareholder support, in case of need, from its 50%-owner, Turkiye Is Bankasi.
The rating actions are as follows:
TKB, TSKB, Turk Eximbank:
Long-term foreign currency IDR: affirmed at 'BBB-'; Stable Outlook
Long-term local currency IDR: affirmed at 'BBB'; Stable Outlook
Short-term foreign and local currency IDRs: affirmed at 'F3'
Support Rating: affirmed at '2'
Support Rating Floor: affirmed at 'BBB-'
National Long-term Rating: affirmed at 'AAA(tur)'; Stable Outlook
Senior unsecured debt (TSKB and Turk Eximbank): affirmed at 'BBB-'
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