Action follows the review of Turkey's Baa3 sovereign rating
London, 19 July 2016 -- Moody's Investors Service has today placed under review for downgrade
the ratings of 17 Turkish banks following a failed coup attempt last week
in Turkey and the related placement of the Turkish sovereign rating under
review for downgrade.
The review for downgrade of the banks' ratings is driven by the
need to assess risks arising from the evolving political and economic
situation, namely 1) the potential weakening of the government's
capacity and willingness to provide support to the banks in case of need,
as implied by the review for downgrade on the sovereign rating,
and 2) the risk of further deterioration in the domestic operating environment,
which could affect the banks' financials, as potential increases
in the cost of funding, reduced profitability, more limited
capital generation capacity and weakening asset quality could weigh on
results over the coming quarters.
While Moody's expects all rated financial institutions to be affected
to some degree by the economic and financial implications of recent events,
the review will assess each institution's particular credit characteristics,
in order to determine to what extent their individual credit ratings could
display resilience or susceptibility to the aforementioned risks.
As noted in the press release announcing the sovereign action, even
though the coup failed, Moody's considers it to be a reflection
of broader political challenges and expects credit risks associated with
recent events to remain elevated. For further details, please
see the July 18 Sovereign rating action at https://www.moodys.com/research/--PR_352273.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_191196
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_191196
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Methodologies Used
RISK OF WEAKENING GOVERNMENT SUPPORT
The long-term ratings of all Turkish banks whose ratings incorporate
uplift from government support have been placed on review for downgrade
to assess a potential weakening in the government's capacity to
provide support in case of need, as signalled by the review for
downgrade of the sovereign rating. In addition to assessing the
capacity of the authorities to provide support, Moody's will
also reassess its assumptions regarding the likelihood or probability
of support incorporated in the banks' ratings, including an
analysis of any potential shifts in policy towards the resolution of ailing
banks and/or signs that the authorities may want to become more selective
in providing support in the future.
The banks' ratings have also been placed on review to capture the
likelihood of a lower foreign currency deposit ceiling given the review
on the government debt rating.
RISK OF DETERIORATION IN DOMESTIC OPERATING ENVIRONMENT AFFECTING BANKS'
FINANCIAL PERFORMANCES
Another key driver for the review for downgrade of the Turkish financial
institutions' ratings is the risk of a deteriorating environment
driven by weaker investor and consumer confidence, leading to lower
growth and pressured financial performance for banks and their customers.
A weaker environment and/or financial metrics could pressure individual
standalone credit profiles, as captured by the baseline credit assessment
(BCA) assigned to each institution.
The operating conditions for financial institutions are captured by Moody's
under a macro profile that currently stands at "Moderate"
for Turkey, which Moody's views at risk of being lowered owing
to the heightened challenges that may emerge from the aftermath of the
failed coup.
A lower macro profile implies that a financial institution would require
enhanced loss-absorbing buffers in order to withstand the harsher
conditions while maintaining the same credit scores and ratings.
However, Moody's observes that there is a risk that,
in practice, the financial metrics of Turkish banks could weaken.
More particularly, Moody's highlights funding, capital,
asset quality and profitability as potentially vulnerable.
Funding for Turkish banks could become more expensive or even more difficult
to access given their large dependence on market funds and their exposure
to the FX market in a context where the local currency could be under
pressure. Loans stood at 123% of deposits at year-end
2015, and more than half of banks' capital market borrowing is short-term
(less than one year) and is therefore particularly sensitive to a deterioration
in investor sentiment and a perception of increased emerging market risk
because it must be frequently refinanced.
Capital ratios, while currently relatively robust, are vulnerable
to 1) a weakening in the credit quality of governments bonds, which
could trigger higher risk-weights for these bonds for the purpose
of calculating capital ratios, and 2) currency depreciation,
as up to 40% of the institutions' assets are in foreign currencies
while Tier 1 capital buffers held against these assets tend to be in Turkish
liras.
Asset quality is also at risk over time, as weaker economic growth
and risk aversion will likely require a higher volume of restructuring
and increased non-performing loans, especially from highly
leveraged corporates and households.
Profitability and, therefore, the internal capital generation
capacity of the institutions will likely be affected by an economic slowdown
and risk aversion that would likely cause some investments to be postponed.
In turn, this will likely reduce the institutions' credit
growth and revenues, while any higher funding and credit costs would
exacerbate the pressure on net earnings.
AFFILIATE SUPPORT
Where bank ratings currently benefit from an uplift from affiliate support,
Moody's will assess the extent to which there is any recent reason
to change its assumptions, either positively in a way that might
potentially offset pressure on the banks BCAs, or negatively if
needed. However, the default assumption is that existing
support assumptions regarding parent companies' capacity and willingness
to support are well positioned and should be unaffected.
WHAT COULD MOVE RATINGS UP OR DOWN
There is limited upside to the ratings given the review for downgrade.
For banks with potentially weaker BCAs, standalone ratings could
be downgraded if Moody's anticipates that the deterioration in the
macro environment will lead to a meaningful weakening in refinancing capability,
profitability and asset quality of the banks.
For banks whose ratings incorporate an uplift from government support,
the ratings could be downgraded following the downgrade of the sovereign
rating or if Moody's changes its views of the government's
capacity and / or willingness to provide support in light of the weakening
economic environment. Similarly, ratings could also be downgraded
if any ceilings are lowered in conjunction with any sovereign downgrade.
The principal methodology used in rating Akbank TAS, Alternatifbank
A.S., Burgan Bank A.S., Denizbank
A.S., Finansbank AS, HSBC Bank A.S.
(Turkey), ING Bank A.S. (Turkey), Sekerbank
T.A.S., T.C. Ziraat Bankasi,
Turk Ekonomi Bankasi AS, Turkiye Garanti Bankasi AS, Turkiye
Halk Bankasi A.S., Turkiye Is Bankasi AS, Turkiye
Sinai Kalkinma Bankasi A.S., Turkiye Vakiflar Bankasi
TAO, and Yapi ve Kredi Bankasi AS was Banks published in January
2016. The principal methodology used in rating Export Credit Bank
of Turkey A.S. was Government-Related Issuers published
in October 2014. Please see the Ratings Methodologies page on www.moodys.com
for a copy of these methodologies.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_191196
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Lead Analyst
• Person Approving the Credit Rating
• Releasing Office
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. On
this basis Turk Ekonomi Bankasi AS or their agents are considered to be
participating entities. These rated entities or their agents generally
provide Moody's with information for their ratings process.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead analyst and the Moody's legal entity that has issued the ratings.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Irakli Pipia
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Sean Marion
Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Reviews for Downgrade the Ratings of 17 Turkish Banks
