Outlook on the D- Bank Financial Strength Rating changed to negative from stable
Frankfurt am Main, March 10, 2011 -- Moody's Investors Service has today changed the outlook on Eurobank Tekfen
A.S.'s D- bank financial strength rating (BFSR)
to negative from stable. At the same time, the long-term
global local-currency (GLC) deposit rating of Eurobank Tekfen A.S.
was downgraded to Ba3 from Ba2, thereby removing the parental support
previously incorporated into the ratings. The long-term
rating now carries a negative outlook in line with the outlook of the
BFSR.
Today's rating action concludes the review for possible downgrade
of the GLC rating, which Moody's initiated on 20 December
2010.
RATINGS RATIONALE
The outlook on Eurobank Tekfen's BFSR was changed to negative for
the following reasons:
I. The bank's very small franchise might face considerable
challenges as it expands in the highly competitive environment in Turkey,
with some uncertainty over Turkish banks' profitability prospects
in the medium-term. The success of the bank's expansion
will depend on its ability to achieve growth with appropriate risk-adjusted
returns. The time it takes for the bank to realise these returns
(or a lack of them) could further weaken the bank's profitability
and efficiency into 2012.
II. The bank has a moderate reliance on funding from its Greek
majority owner EFG Eurobank Ergasias (EFG) (Ba3/Non-Prime/E+
with negative(m) outlook), combined with some balance-sheet
exposures to EFG in the form of deposit placements, in turn collateralised
by EFG funds. As of Q3 2010 unaudited, interim financials,
funds provided by EFG represented approximately net 10% and gross
22% of Eurobank Tekfen's balance-sheet total. Hence,
the bank is currently a net borrower from its parent. Also,
Moody's understands that any potential net placement by Eurobank
Tekfen at its parent will be subject to the local regulatory limits for
total intergroup lending for a maximum of 20% of capital.
Moody's acknowledges Eurobank Tekfen's financial flexibility in
view of the short duration of its lending portfolio as well as its adequate
alternative funding sources.
III. The bank has an increasing loans to core-deposit ratio,
as a result of its expansion strategy. As of Q3 2010 the ratio
remains comfortable at 90%, in line with that of the system's.
However, as the bank's growth continues, its overall
funding profile might become more vulnerable as it may rely on its parent
EFG to a lesser extent, given the parent's increased funding
and liquidity challenges.
The downgrade of Eurobank Tekfen's GLC rating reflects the removal
of parental support and follows the downgrade of EFG Eurobank Ergasias's
(EFG) BFSR to E+ from D and of its GLC rating to Ba3 from Ba1.
EFG, through a 70% ownership, is the majority owner
of Eurobank Tekfen (see press release "Moody's downgrades the ratings
of six Greek banks" published 9 March 2011). Given the challenges
that the parent is currently faced with, Moody's believes
that EFG has only very limited capability to provide support to Eurobank
Tekfen, in case of need.
Nevertheless, we note that both shareholders -- including Turkish
Tekfen Group (unrated) with a 30% stake -- share an interest
in the smooth operation of the bank, as evidenced by the recent
announcement of a combined capital injection and conversion of a portion
of Tier 2 capital. Based on the projected balance-sheet
composition, the bank anticipates a resulting Tier 1 ratio of approximately
16-18%, as per BDDK standards. Adjusted for
the full risk weight of the bank's portfolio of Ba2 rated Turkish
government securities, Moody's adjusted Tier 1 ratio should
range between 10-13%, which is considered a sound
capitalisation level for the bank.
Due to the removal of parental support, Eurobank Tekfen's
ratings no longer benefits from any rating uplift and hence the outlook
on its long-term ratings follow the outlook of the BFSR.
Currently there is no upward pressure on the rating. The outlook
could revert to stable if there is (i) a sustained trend of improving
core earnings that does not significantly increase the bank's risk profile,
combined with satisfactory capital levels; and (ii) material improvements
in asset quality, franchise value and funding diversification.
Eurobank Tefken's ratings could come under further downward pressure
if there is (i) a deterioration in its liquidity or funding position,
and/or any pressures on EFG's liquidity and capital that had adverse
implications for Eurobank Tekfen; (ii) a continual weakening of the
bank's core earnings, or reductions in capital; and (iii)
further increases in non-performing loans that would impose any
risk on the bank's solvency.
PREVIOUS RATING ACTIONS AND PRINCIPAL METHODOLOGIES
The most recent rating action on Eurobank Tekfen A.S. was
implemented on 20 December 2010, when Moody's placed the Ba2
long-term GLC deposit rating under review for possible downgrade.
The principal methodologies used in rating these issuers are "Bank Financial
Strength Ratings: Global Methodology" published in February 2007,
"Incorporation of Joint-Default Analysis into Moody's Bank Ratings:
A Refined Methodology" published in March 2007, and "Moody's Guidelines
for Rating Bank Hybrid Securities and Subordinated Debt", published
in November 2009.
Headquartered in Istanbul, Turkey, Eurobank Tekfen A.S.
had total assets (audited) of TRY4.1 billion (USD2.7 billion)
under BRSA, at the end of December 2009.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, and public information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
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and accurate based on the information that is available to it.
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Frankfurt am Main
Arif Bekiroglu
Asst Vice President - Analyst
Financial Institutions Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
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Frankfurt am Main
Carola Schuler
MD - Banking
Financial Institutions Group
Moody's Deutschland GmbH
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Moody's Deutschland GmbH
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Moody's downgrades Eurobank Tekfen's GLC deposit rating to Ba3; outlook negative
