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Rating Action:

Moody's takes rating actions on 17 Turkish banks

09 Mar 2018

Actions follow downgrade of the Turkish sovereign rating

London, 09 March 2018 -- Moody's Investors Service has today taken rating actions on 17 Turkish banks. The long-term ratings of 14 banks were downgraded whilst the rating of 3 other banks were affirmed. The outlook on 12 banks was changed to stable from negative whilst the outlook on 5 other banks remains negative.

The rating actions were driven by 1) the weakened capacity of the Turkish government to provide support to the country's banks, reflected in the downgrade of Turkey's government debt rating to Ba2 with stable outlook from Ba1 with negative outlook on 7 March, 2018; 2) Moody's lowering of its Macro Profile for Turkey to Weak+ from Moderate- and 3) its view that the operating environment in Turkey will become more challenging in 2018.

The downgrade of Turkey's government debt rating was driven by Moody's view of 1) the continued loss of institutional strength and 2) the increased risk of an external shock crystallising. For details, please refer to the press release: http://www.moodys.com/viewresearchdoc.aspx?docid=PR_379438

Detailed rationales for individual bank rating actions are provided later in this Press Release.

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_198592 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_198592 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:

• Principal Methodology

WEAKENED GOVERNMENT CAPACITY TO SUPPORT

Moody's says that there has been a weakening of the Turkish government's capacity to provide support to the country's banks in case of need, as reflected in the downgrade to Ba2 from Ba1 of the government's debt rating. Although Moody's now incorporates one or two notches of government support for 7 government-owned and systemically important banks, their long-term deposit ratings have been downgraded by one notch and the outlooks changed to stable from negative, in line with the downgrade of the sovereign rating.

The rating agency also notes that the sovereign rating action takes into account the government's limited foreign currency resources, with the Central Bank's net foreign currency reserves reducing to USD27 billion at year-end 2017 (from approximately USD38.5 billion at end-January 2017). This compares to about USD78 billion of banking system short-term wholesale FX refinancing needs, which could result in the country's authorities becoming more selective in providing support to the banking system in a stress scenario.

LOWER MACRO PROFILE

Moody's says that a key driver for the lowering of Turkish banks' BCAs is the lowering of its Macro Profile for Turkey. This was driven by the following considerations, which underlie the downgrade of the sovereign rating:

1) The continued loss of institutional strength, as evidenced for example by further erosion in the effectiveness of monetary policy;

2) The increased risk of an external shock crystallising, in the context of heightened political risk and rising global interest rates.

Moody's has captured the impact that these developments may have on the Turkish banks, through the sovereign factors incorporated in its Banking Country Risk assessment, resulting in a lowering of the Macro Profile it assigns to Turkey to Weak+ from Moderate-.

DOMESTIC OPERATING ENVIRONMENT WILL BECOME MORE CHALLENGING IN 2018

Moody's acknowledges Turkey's strong GDP growth at an estimated rate of nearly 7% in 2017 and Turkish banks' improved profitability and asset quality trends. The banking system reported low problem loans of 3% of gross loans as at end-2017, however this was supported by high loan growth of 21%, driven by government stimulus measures and, to some extent, relaxation of regulatory standards. Banks reported good profitability (16% return on average equity), adequate capital (c.17% Capital Adequacy Ratio) and unconstrained access to foreign exchange (FX) funding.

Moody's says it however expects that the operating environment will become less supportive in the coming year, with GDP growth slowing to 4.0% in 2018, high inflation which is unlikely to fall to single digit, high unemployment, particularly among younger people, continued political risk and a weak investment climate affecting the standalone credit strength of the Turkish banks.

Specifically Moody's expects that the competitive dynamics will increase pressure on domestic funding costs, increasing pressure on net interest margins. At the same time it expects asset quality to deteriorate, as high corporate FX exposures, the weakening of the construction sector and the difficulties of some large borrowers will likely lead to higher levels of problem loans.

Turkish banks continue to have a significant dependence on wholesale FX funding, given a high system-wide loan to deposit ratio of 126% at end-2017. Moody's estimates that the banking system's short-term FX wholesale refinancing needs are around USD78 billion, about 50% of total FX wholesale funding. This makes the banking system particularly sensitive to potential shifts in investor sentiment, as these foreign currency liabilities must be refinanced on an ongoing basis. Moody's considers that an increased risk of an external shock means that the banking system is more susceptible to a loss of investor confidence. In such a scenario, banks would be forced to reduce lending to the economy, with negative effects on asset quality, profitability and ultimately capital.

Capital ratios also remain vulnerable to: 1) further currency depreciation, as about 39% of the institutions' assets are in foreign currencies, while Tier 1 capital buffers held against these assets are in Turkish liras; and 2) lending growth above the internal capital creation rates, as occurred in 2017.

RATIONALE OF THE OUTLOOK CHANGES

The change of outlook to stable from negative of 12 Turkish banks is driven by the change of outlook to stable from negative of Turkey's sovereign debt rating of Ba2. Five other banks continue to have a negative outlook for bank-specific considerations (details below).

These banks' ratings already incorporate Moody's expectations of a weakening of financial fundamentals.

FOREIGN BANKS' AFFILIATE SUPPORT CONSIDERATIONS

Moody's considers that, despite the adverse operating environment, existing support assumptions regarding parent companies' capacity and willingness to provide support remain correctly positioned and are unaffected by this rating action. As a result, nine Turkish subsidiaries of foreign banks continue to benefit from an uplift above their BCA in the range of 1-3 notches.

WHAT COULD MOVE THE RATINGS UP/DOWN

The standalone BCAs could be upgraded if banks 1) improve their loan to deposit ratios to more sustainable levels; 2) are able to maintain the strong 2017 performance when the economic stimulus and regulatory relaxation are withdrawn and 3) the operating environment improves.

Conversely, the BCAs could be downgraded if the deterioration in the operating environment leads to a significant weakening in refinancing capability, asset quality and capital of the banks.

Long-term deposit or debt ratings, which incorporate an uplift from government support, could be affected by changes in the sovereign rating, Moody's views on the government's willingness to provide support, or sovereign ceilings.

Similarly, long-term deposit and debt ratings incorporating uplift from affiliate support could also be affected if Moody's views of parental rating and/or support incorporated into the ratings change. This could reflect a deterioration of operating conditions in Turkey leading to a parent having a lower incentive to provide support to subsidiaries in the country.

BANKS' RATINGS RATIONALE

Turkiye Is Bankasi A.S. (Isbank)

The long-term foreign currency senior unsecured debt and local currency deposit ratings of Isbank were downgraded to Ba2 from Ba1, with negative outlook. The bank's long-term foreign currency deposit rating was downgraded to Ba3 from Ba2 (constrained by the lower sovereign ceiling at Ba3). The BCA was downgraded to ba3 from ba2.

The principal drivers for the rating action are the downgrade of the Turkish sovereign rating to Ba2 from Ba1 and foreign currency deposit ceiling to Ba3 from Ba2 and lowering the bank's standalone BCA.

While Moody's continues to assume a high probability of support, given the systemic importance of Isbank as Turkey's largest private-sector institution, the rating action reflects a potential weakening in the government's capacity to provide support in case of need, as signaled by the downgrade of the sovereign rating.

Moody's also downgraded Isbank's standalone BCA to ba3 from ba2 because of the sensitivity of its standalone credit profile to the weakened operating environment as expressed in the lower Macro Profile for Turkey. Moody's expects the bank's asset quality to come under further pressure albeit from a low level of problem loans at 2% of total loans as at end-2017. The bank's capitalisation has declined for the last three years with Moody's adjusted Tangible Common Equity ratio at 8.7% as at end-2017 vs. 9.45% as at end-2014. At the same time, the bank maintains a high level of provisioning coverage and, consequently, risk absorption capacity, which is in line with other leading Turkish banks. The bank has a proven track-record of refinancing its wholesale liabilities (market funds at 29% of tangible banking assets as at end-2017) during challenging periods and large holdings of liquid assets also mitigate the bank's refinancing risk while its profitability remains adequate.

The negative outlook on the long-term senior unsecured debt and deposit ratings is due Moody's expectation that the challenging operating environment could further weaken the bank's standalone credit profile.

T.C. Ziraat Bankasi (Ziraat)

The long-term foreign currency senior unsecured debt and local currency deposit ratings of Ziraat were downgraded to Ba2 from Ba1, and the outlook changed to stable from negative. The bank's long-term foreign currency deposit rating was downgraded to Ba3 from Ba2 (constrained by the lower sovereign ceiling at Ba3), and the outlook changed to stable from negative. The BCA was downgraded to ba3 from ba2.

The principal driver for the rating action is the downgrade of the sovereign rating to Ba2 with stable outlook from Ba1 from negative outlook and the lowering of foreign currency deposit ceiling to Ba3 from Ba2. While Moody's continues to assume a very high probability of support for this fully government-owned bank, the rating action reflects a weakening in the government's capacity to provide support in case of need, as signaled by the downgrade of the sovereign rating. The stable outlook on Ziraat's long-term senior unsecured debt and deposit ratings is consistent with the outlook on Turkish sovereign rating.

Moody's has also downgraded Ziraat's standalone BCA to ba3 from ba2 because of the sensitivity of its standalone credit profile to the weakened operating environment as expressed in the lower Macro Profile for Turkey. Moody's expects the bank's asset quality to deteriorate gradually, albeit from a very low level of problem loans at 1.6% of total loans at September-2017, putting pressure on its currently strong net profitability. Ziraat's capitalisation (Moody's adjusted Tangible Common Equity ratio of 11.2% at September-2017) may come under pressure due to rapid loan growth and/or foreign currency volatility. Ziraat's dependence on wholesale funding, has increased in recent years (market funds at 26% of tangible banking assets at September 2017) although mitigated by ample liquid resources (with liquid assets at 30% of tangible banking assets at September 2017).

Turkiye Garanti Bankasi A.S. (Garanti)

The long-term foreign and local currency senior unsecured debt and local currency deposit ratings of Garanti were downgraded to Ba2 from Ba1, and the outlook changed to stable from negative. The bank's foreign currency deposit rating was downgraded to Ba3 from Ba2 (constrained by the lower sovereign ceiling at Ba3), and the outlook changed to stable from negative. The BCA was downgraded to ba3 from ba2.

The principal driver for the downgrade is the impact of the weakened operating environment on Garanti's standalone financial fundamentals, as expressed in the lower Macro Profile for Turkey. Moody's expects the bank's asset quality to weaken from a low level at 2.54% as at end-2017. At the same time, Moody's acknowledges that the bank's profitability remains strong despite economic slow-down and headwinds from the operating environment. Although the bank's capitalisation is exposed to the currency depreciation it is one of the strongest among similarly-rated peers, with Moody's adjusted Tangible Common Equity at 12.8% as at end-2017. Garanti's market funding reliance is broadly in line with the Turkish peers with market funds at 26% of tangible banking assets as at end-2017. However, Moody's notes that the bank has demonstrated its ability to refinance its wholesale liabilities during challenging periods.

The stable outlook is due to the resilience of the bank's standalone financial fundamentals to further expected volatility in the operating environment.

Garanti's long-term ratings continue to incorporate a moderate probability of affiliate support from Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) (A3 LT bank deposits stable, BCA baa2) leading to a one notch uplift from its standalone BCA. The current government support assumptions do not result in any additional uplift for the bank's long-term ratings.

Akbank TAS (Akbank)

The long-term foreign currency senior unsecured debt and local currency deposit ratings of Akbank were downgraded to Ba2 from Ba1 and the outlook changed to stable from negative. The bank's long-term foreign currency deposit rating was downgraded to Ba3 from Ba2 (constrained by the lower sovereign ceiling at Ba3), and the outlook changed to stable from negative. The BCA was downgraded to ba3 from ba2.

Moody's says the principal driver for the rating action is the downgrade of the Turkish government's debt rating to Ba2 with stable outlook from Ba1 with negative outlook and the lowering of foreign currency deposit ceiling to Ba3 from Ba2. While Moody's continues to assume a high probability of support for this systemically important bank, leading to one notch of uplift for the debt and local currency deposit ratings, the rating action reflects a weakening in the government's capacity to provide support in case of need, as signalled by the downgrade of the sovereign rating. The stable outlook on Akbank's long-term ratings is consistent with the outlook on the sovereign rating. The stable outlook also reflects the fact that Akbank's ratings already incorporate Moody's expectations of a weakening of financial fundamentals.

The rating agency has downgraded Akbank's standalone BCA because of the sensitivity of Akbank's standalone credit profile to the challenging operating environment, particularly its asset quality and funding. Moody's expects the bank's asset quality to weaken from a low level of problem loans (at 2.1% of gross loans at end-2017), dampening its strong net profitability. The bank's loss absorption capacity is supported by high provisioning coverage and good capitalisation. Akbank's capitalisation has slightly weakened for the last three years (Moody's adjusted Tangible Common Equity ratio has declined from 13.1%% at end-2015 to 12.5% at end-2017) and may decline further due to loan growth and/or foreign currency volatility. Akbank's dependence on wholesale funding remains significant, with market funds at 29% of tangible banking assets, but with manageable refinancing risk.

Yapi ve Kredi Bankasi A.S. (YapiKredi)

The long-term foreign currency senior unsecured debt and local currency deposit ratings of YapiKredi were downgraded to Ba2 from Ba1, with negative outlook. The bank's long-term foreign currency deposit rating was downgraded to Ba3 from Ba2, with negative outlook (constrained by the lower sovereign ceiling at Ba3). The BCA was downgraded to ba3 from ba2.

The principal driver for the downgrade is the impact of the weakened operating environment on YapiKredi's standalone financial fundamentals, as expressed in the lower Macro Profile for Turkey. Despite the improving trends in 2017, Moody's expects the bank's asset quality to weaken given its exposure to the unsecured retail segment. With problem loans as percentage of total loans at 4.1% as at end-2017 the bank's asset quality remains weaker compared with the leading Turkish banks. The bank's capitalisation is sensitive to foreign currency devaluation with Tangible Common Equity ratio at 9.2% as at end-2017 and weaker compared with other leading private-sector peers. YapiKredi's dependence on wholesale market, however, is in line with the peers with market funds at 30% of tangible banking assets as at end-2017. At the same time, Moody's notes that YapiKredi successfully raised long-term debt during the last year and its refinancing needs in the coming period remain low given the longer average duration of its debt compared with peers. In addition, Moody's into account the bank's improving profitability trends, although this may come under pressure due to the macro-economic volatility.

The negative outlook on the long-term senior unsecured debt and deposit ratings is due to Moody's expectation that the challenging operating environment could further weaken the bank's standalone credit profile.

YapiKredi continues to incorporate a moderate probability of affiliate support from UniCredit S.p.A. (Baa1 LT bank deposits positive, BCA ba1) leading to a one notch uplift on its standalone BCA. The current government support assumptions do not result in an additional uplift on the bank's long-term ratings.

Turkiye Vakiflar Bankasi TAO (Vakifbank)

The long-term foreign currency senior unsecured debt and local currency deposit ratings of VakifBank were downgraded to Ba2 from Ba1 and the outlook changed to stable from negative. The bank's long-term foreign currency deposit rating was downgraded to Ba3 from Ba2 (constrained by the lower sovereign ceiling at Ba3), and the outlook changed to stable from negative. The BCA was downgraded to b1 from ba2.

Moody's says the principal driver for the rating action is the downgrade of the Turkish government's debt rating to Ba2 with stable outlook from Ba1 with negative outlook and the lowering of foreign currency deposit ceiling to Ba3 from Ba2. While Moody's continues to assume a very high probability of support for this government-owned bank, leading to two notches of uplift (from one previously) for the debt and local currency deposit ratings, the rating action reflects a weakening in the government's capacity to provide support in case of need, as signalled by downgrade of the sovereign rating. The stable outlook on VakifBank's long-term ratings is consistent with the outlook on the sovereign rating. The stable outlook also reflects the fact that VakifBank's ratings already incorporate Moody's expectations of a weakening of financial fundamentals.

The rating agency has downgraded VakifBank's standalone BCA because of the high sensitivity of VakifBank's standalone credit profile to the challenging operating environment, particularly its asset quality, capitalisation and funding. Moody's expects the bank's asset quality to weaken from a higher than average level of problem loans of 4% of gross loans at end-2017, dampening its currently strong net profitability. The bank's limited loss absorption capacity is constrained by moderate capitalisation and accompanied by adequate provisioning coverage. VakifBank's capitalisation has improved slightly for the last three years (Moody's adjusted Tangible Common Equity ratio has risen from 9.5% at end-2015 to 10.3% at September-2017) but may decline due to loan growth and/or foreign currency volatility. VakifBank's dependence on wholesale funding remains significant, with market funds at 28% of tangible banking assets, but with manageable refinancing risk.

Turkiye Halk Bankasi A.S. (Halkbank)

The long-term foreign currency senior unsecured debt and long-term foreign- and local-currency deposit ratings of Halkbank were downgraded to Ba3 from Ba2. The outlook on the banks long-term senior unsecured debt and deposit ratings is negative. The BCA was downgraded to b2 from b1.

The principal the drivers for the rating action are the downgrade of the Turkish sovereign rating to Ba2 from Ba1 and foreign currency deposit ceiling to Ba3 from Ba2 and lowering the bank's standalone BCA.

While Moody's continues to assume a very high probability of support for this majority government-owned bank, the rating action reflects a weakening in the government's capacity to provide support in case of need, as signaled by the downgrade of the sovereign rating.

Moody's also downgraded Halkbank's standalone BCA to b2 from b1 because of the sensitivity of its standalone credit profile to the weakened operating environment as expressed in the lower Macro Profile for Turkey. Moody's expects the bank's asset quality to weaken with problem loans at 3% as at end-2017. The bank's capitalisation has been on a downward trajectory with Moody's adjusted Tangible Common Equity ratio at 9.9% as at end-2017 compared to 10.9% as at end-2014. Moody's expects capitalisation to remain under pressure given the rapid growth of its assets and volatility in the operating environment. Although the bank's net interest margin stabilised in Q4 2017 it is weaker than its peers and remains constrained by the bank's reliance on costly domestic funding sources.

Halkbank's reliance on shorter-term wholesale funding, including secured funding from the Central Bank of the Republic of Turkey, is relatively high. As of end-2017, the bank's reliance on wholesale funds with the contractual maturity of up to 3 months increased to 70% of wholesale liabilities, from 60% in Q1 2017. In Moody's view, this short-term liability structure exposes the bank to a heightened refinancing risk.

The principle driver for the negative outlook on the bank's long-term senior unsecured debt and deposit ratings is Moody's expectation that the challenging operating environment could further weaken the bank's standalone financial fundamentals as well as a potential risk of direct or indirect repercussions on the bank's credit profile from the legal proceedings against its former deputy-CEO who was convicted by the US authorities for facilitating transactions with prohibited parties.

Denizbank A.S. (Denizbank)

The local currency long-term deposit ratings of Denizbank were affirmed at Ba2, with negative outlook. The bank's long-term foreign currency deposit rating was downgraded to Ba3 from Ba2 (constrained by the lower sovereign ceiling at Ba3), with a negative outlook. The BCA was affirmed at ba3.

The principal the drivers for the rating action was the lowering of the country's foreign currency deposit ceiling to Ba3 from Ba2.

The principal driver for the affirmation of the BCA is the resilience of Denizbank's BCA at the ba3 level to the challenging operating environment. The bank's capitalisation benefited from a high internal capital creation rate and injection of Tier 1 capital in 2016. The bank's refinancing risk is relatively low with market funds at 16% of tangible banking assets as at September 2017. Moody's expects the bank's profitability to remain under pressure, however, given the headwinds in the operating environment and the relatively high concentration in the bank's loan portfolio.

The negative outlook on the long-term deposit ratings is due to Moody's expectation that the challenging operating environment could further weaken the bank's standalone credit profile.

Denizbank continues to incorporate a high probability of affiliate support from its 99% shareholder Sberbank, leading to one notch of uplift on its standalone BCA (unchanged).

HSBC Bank A.S. (Turkey) (HSBC-TR)

The foreign and local currency long-term deposit ratings of HSBC-TR's were affirmed at Ba3, with a negative outlook. The BCA was affirmed at b2. The bank's long and short-term National Scale Rating was also affirmed at A2.tr/TR-1.

The principal driver for the affirmation is the resilience of the bank's relatively low b2 standalone BCA to the challenging operating environment. Moody's expects the bank's asset quality to weaken gradually. With non-performing loans as percentage of total loans at 5.8% as at September 2017, it is one of the weakest with the peer group. The bank's capitalisation with Tangible Common Equity ratio of 7.7% as at September 2017 remains weaker than its peers. The bank managed to stay profitable in 2017 after a loss-making performance since 2014, although with a relatively high cost-to-income ratio at 65% as at September 2017. The bank's refinancing risk remains manageable with market funds at 23.5% of tangible banking assets as at September 2017.

The principal driver for the negative outlook on the bank's long-term deposit ratings is Moody's expectation that the challenging operating environment could further weaken the bank's standalone financial fundamentals.

HSBC-TR continues to incorporate a high probability of affiliate support from its 100% shareholder HSBC Holdings plc (Senior unsecured A2 Negative) leading to two notches of uplift in its ratings (unchanged).

Turk Ekonomi Bankasi A.S. (TEB)

The long-term local currency deposit rating of TEB was downgraded to Ba2 from Ba1, and the outlook changed to stable from negative. The bank's long-term foreign currency deposit rating was downgraded to Ba3 from Ba2 (constrained by the lower sovereign ceiling at Ba3), and the outlook changed to stable from negative. The BCA was affirmed at ba3 and the adjusted BCA was affirmed at ba1.

Moody's says, the principal driver for the rating action is the downgrade of the Turkish government's debt rating to Ba2 with stable outlook from Ba1 with negative outlook and the lowering of foreign currency deposit ceiling to Ba3 from Ba2. The stable outlook on TEB's local and foreign currency deposit ratings is consistent with the outlook on Turkish government bond rating. The stable outlook also reflects Moody's expectation that the support from TEBs parent - BNP Paribas (BNPP, LT deposit rating Aa3 stable, BCA baa1) - remains unchanged at high which results in a two notch uplift to the ba1 adjusted BCA.

The rating agency has affirmed TEB's ba3 standalone BCA given the bank's resiliency at this rating level to the challenging operating environment, as evidenced by stronger profitability (net income to tangible banking assets at 1.3% for nine months ending September 2017) and improving capitalisation (tangible common equity ratio at 12% as of September 2017 up from 10% as of December 2016). The bank's asset quality has also remained stable, with problem loans at a low level of around 3.1% of gross loans as of September 2017. TEB's dependence on wholesale funding remains at an acceptable level, with market funds at 20% of tangible banking assets, and refinancing risk is mitigated by the fact that almost half of this market funding is sourced from the parent.

QNB Finansbank AS (QNB Finansbank)

The long-term local currency deposit rating of QNB Finansbank was downgraded to Ba2 from Ba1, and the outlook changed to stable from negative. The bank's long-term foreign currency deposit rating was downgraded to Ba3 from Ba2 (constrained by the lower sovereign ceiling at Ba3), and the outlook changed to stable from negative. The BCA was affirmed at ba3 and the adjusted BCA was affirmed at ba1.

Moody's says, the principal driver for the rating action is the downgrade of the Turkish government's debt to Ba2 with stable outlook from Ba1 with negative outlook and lowering of foreign currency deposit ceiling to Ba3 from Ba2. The stable outlook on QNB Finansbank's local and foreign currency deposit ratings is consistent with the outlook on the government's bond rating. The stable outlook also reflects Moody's expectation that support from QNB Finansbank's parent -- Qatar National Bank (Q.P.S.C.) (QNB, LT bank deposits Aa3 negative, BCA baa1) -- will continue to drive two notches of uplift to ba1 adjusted BCA. Although the uplift resulting from Moody's affiliate support assumptions remained unchanged, the rating agency now incorporates a 'very high' support assumption from QNB compared to 'high' previously. This has been driven by the strategic importance of the bank to QNB, greater integration and increasing significance to the parent as it now represents 16% of QNB's assets.

The rating agency has affirmed QNB Finansbank's ba3 standalone BCA given the bank's resiliency at this rating level to the challenging operating environment, as evidenced by stronger profitability (net income to tangible banking assets at 1.47% as of September 2017) and stable capitalisation (tangible common equity ratio at 11.7% as of September 2017). The bank's asset quality although remains weak relative to domestic peers but has been improving with problem loans down to 5.2% of gross loans as at September 2017 from 5.6% as of end-2016, This weaker asset quality is partly mitigated by a stable and high provisioning coverage at 86% compared to the domestic average at around 80%. On funding, the bank's dependence on wholesale funding remains high, with market funds at 29% of tangible banking assets as of September 2017, however refinancing risk is mitigated as this level includes capital market issuances and syndication transaction which are generally longer term.

Alternatifbank A.S.(Alternatif Bank)

The long-term local currency deposit rating of Alternatif Bank was downgraded to Ba2 from Ba1, and the outlook changed to stable from negative. The bank's long-term foreign currency deposit rating was downgraded to Ba3 from Ba2 (constrained by the lower sovereign ceiling at Ba3), and the outlook changed to stable from negative. The BCA was affirmed at b1 and the adjusted was affirmed BCA at ba1.

Moody's says, the principal driver for the rating action is the downgrade of the Turkish government's debt rating to Ba2 with stable outlook from Ba1 with negative outlook and lowering of foreign currency deposit ceiling to Ba3 from Ba2. The stable outlook on Alternatif Bank's local and foreign currency deposit ratings is consistent with the outlook on the government's bond rating. The stable outlook also reflects the rating agencies expectation that the support from Alternatif Bank's sole shareholder --The Commercial Bank (P.S.Q.C.) (CBQ, LT bank deposits A2 negative, BCA baa3) based in Qatar - remains unchanged at very high which results in a three notch uplift to ba1 adjusted BCA.

Moody's has affirmed Alternatif Bank's b1 standalone BCA given the bank's resiliency at this rating level to the challenging operating environment, as evidenced by improving asset quality, capital and profitability. Although, the bank's asset quality has been improving with problem loans down to 4.0% of gross loans as at September 2017 from 5.0% as of end-2016 it remains weak relative to domestic peers. During the same period, profitability has improved to 0.6% from 0.2% of tangible assets and tangible common equity ratio up to 10.4% from 8.5%. These improvements result from a restructuring exercise following CBQ's acquisition of Alternatif Bank in December 2016. Alternatif Bank has also changed its risk management team including underwriting standards as part of its restructuring exercise which resulted in enhancing collection efforts and reducing the stock of problem loans. On funding, the market funding level remains very high at 35% of tangible banking assets. The refinancing risks related to this funding is partly mitigated by the longer maturity of some of this funding and high stock of liquid assets at 26% of tangible banking assets.

ING Bank A.S. (Turkey) (ING-TR)

The long-term local currency deposit ratings of ING-TR was downgraded to Ba2 from Ba1, and the outlook changed to stable from negative. The bank's long-term foreign currency deposit rating was downgraded to Ba3 from Ba2 (constrained by the lower sovereign ceiling at Ba3), and the outlook changed to stable from negative. The BCA was affirmed at b1 and the adjusted BCA was affirmed at ba1.

Moody's says, the principal driver for the rating action is the downgrade of the Turkish government's debt to Ba2 with stable outlook from Ba1 with negative outlook and lowering of foreign currency deposit ceiling to Ba3 from Ba2. The stable outlook on ING-TR's local and foreign currency deposit ratings is consistent with the outlook on the government's bond rating. The stable outlook also reflects the rating agencies expectation that the support from ING-TR's parent -- ING Bank N.V. (ING Bank, LT bank deposits Aa3 stable, BCA baa1) - remains unchanged at very high which results in a three notch uplift to the ba1 adjusted BCA.

Moody's has affirmed ING-TR's b1 standalone BCA given the bank's resiliency at this rating level to the challenging operating environment, as evidenced by stronger profitability (net income to tangible banking assets at 1.7% for nine months ending September 2017) and improving capitalisation (tangible common equity ratio at 11.55% as of September 2017 up from 9.5% as of December 2016). The bank's asset quality has although marginally weakened with problem loans at around 3.7% of gross loans as at September 2017 from 3.2% as of end-2016, This is largely due to the fact that unlike its domestic peers, ING did not engage in NPL sales as of Q3 2017. ING's dependence on wholesale funding remains relatively high, with market funds at 40% of tangible banking assets, however, the refinancing risk is partly mitigated as a large part of such funding is sourced from the parent.

Sekerbank T.A.S. (Sekerbank)

The B2 long-term foreign and local currency deposit ratings of Sekerbank were affirmed and the outlook changed to stable from negative. The bank's b2 BCA was also affirmed.

Moody's has affirmed Sekerbank's ratings and changed the outlook to stable given the bank's resiliency at the low rating level of b2, despite the challenging operating environment, as evidenced by improving liquidity and slightly declining problem loans at September 2017. Sekerbank's challenges and expected deterioration are already incorporated in its b2 BCA and stable outlook on its B2 deposit ratings. Moody's expects the bank's asset quality to weaken from an above average level of problem loans (at 5.4% of gross loans at September-2017), dampening its low net profitability. The bank's loss absorption capacity is constrained by weak and declining provisioning coverage and a modest capitalisation. Sekerbank's capitalisation has slightly improved for the last three years (Moody's adjusted Tangible Common Equity ratio has risen from 9.5% at end-2015 to 10% at September-2017) but may decline due to loan growth and/or foreign currency volatility. Sekerbank's dependence on wholesale funding remains significant, with market funds at 27% of tangible banking assets at September 2017 and high refinancing risk because liquid assets remain insufficient to cover wholesale funding.

Odea Bank A.S. (Odea)

Odea's long-term foreign and local currency deposit ratings were affirmed at Ba3, and the outlook was changed to stable from negative. Odea's standalone BCA was affirmed at ba3. Odea's long-term National Scale Rating (NSR) was upgraded to A1.tr from A2.tr.

Moody's says the principal driver for this rating action is change of outlook on the Turkish government's debt rating to stable from negative outlook. The stable outlook on Odea's long term ratings is consistent with the outlook on the sovereign rating. The stable outlook also reflects the fact that Odea's ratings already incorporate Moody's expectations of a weakening of financial fundamentals.

The rating agency has affirmed Odea's standalone BCA at ba3 because of the resiliency of Odea's standalone credit profile to the challenging operating environment, as evidenced by its strengthening capitalisation, profitability and funding. Moody's expects the bank's asset quality to weaken from an above average level of problem loans (at 4.3% of gross loans at September-2017), dampening its still modest although strengthening net profitability. The bank's loss absorption capacity is constrained by low provisioning coverage but supported by strong capitalisation. Odea's capitalisation has significantly strengthened for the last three years (Moody's adjusted Tangible Common Equity ratio has improved from 5.8% at end-2015 to 13.4% at September-2017) but may somewhat decline due to loan growth and/or foreign currency volatility. Odea's dependence on wholesale funding remains moderate, with market funds at 12% of tangible banking assets, with manageable refinancing risk.

Following the Turkish sovereign debt downgrade to Ba2 from Ba1, Odea's Ba3 local currency deposit rating now maps to a range of Aa3.tr-A2.tr from A2.tr-A3.tr. Moody's has remapped Odea's NSR to A1.tr (the middle of the new range), from A2.tr (the top of the previous range), because it better reflects the bank's relative strength within the system.

Turkiye Sinai Kalkinma Bankasi A.S. (TSKB)

The long-term foreign and local currency issuer and long-term foreign currency senior unsecured debt ratings of TSKB were downgraded to Ba2 from Ba1 and the outlook changed to stable from negative. The BCA was downgraded to ba3 from ba2.

The rating agency has downgraded TSKB's standalone BCA because of the sensitivity of TSKB's standalone credit profile to the challenging operating environment, particularly its capitalisation and funding. Moody's expects the bank's asset quality to weaken from a negligible level of problem loans (0.2% of gross loans at end-2017), somewhat dampening its currently strong net profitability. The bank's loss absorption capacity is supported by full provisioning coverage and adequate capitalisation relative to its low problem loans. TSKB's capitalisation has weakened for the last three years (Moody's adjusted Tangible Common Equity ratio has declined from 13.3% at end-2015 to 10.9% at September-2017) and may decline further due to loan growth and/or foreign currency volatility. TSKB's is fully dependent on wholesale funding, as a non-deposit taking institution. Its refinancing risk is however mitigated by access to long-term supranational funding sources, largely under government guarantees.

The rating agency has downgraded TSKB's standalone BCA because of the sensitivity of TSKB's standalone credit profile to the challenging operating environment, particularly its capitalisation and funding. Moody's expects the bank's asset quality to weaken from a negligible level of problem loans (0.2% of gross loans at end-2017), somewhat dampening its currently strong net profitability. The bank's loss absorption capacity is supported by full provisioning coverage and adequate capitalisation relative to its low problem loans. TSKB's capitalisation has weakened for the last three years (Moody's adjusted Tangible Common Equity ratio has declined from 13.3% at end-2015 to 10.9% at September-2017) and may decline further due to loan growth and/or foreign currency volatility. TSKB's is fully dependent on wholesale funding, as a non-deposit taking institution. Its refinancing risk is however mitigated by access to long-term supranational funding sources, largely under government guarantees.

Export Credit Bank of Turkey A.S. (Turk Exim)

The long-term foreign and local currency issuer and foreign-currency senior unsecured debt ratings of Turk Exim were downgraded to Ba2 from Ba1 and the outlook changed to stable from negative. The BCA was downgraded to ba3 from ba2.

Moody's says the principal driver for the rating action is the downgrade of the Turkish government's debt rating to Ba2 with stable outlook from Ba1 with negative outlook. While Moody's continues to assume a very high probability of support for this government-owned development bank, leading to one notch of uplift for the debt ratings, the rating action reflects a weakening in the government's capacity to provide support in case of need, as signalled by downgrade of the sovereign rating. The stable outlook on Turk Exim's long-term ratings is consistent with the outlook on the sovereign bond rating. The stable outlook also reflects the fact that Turk Exim's ratings already incorporate Moody's expectations of a weakening of financial fundamentals.

The rating agency has downgraded Turk Exim's BCA to ba3 from ba2 because of the sensitivity of Turk Exim's standalone credit profile to the challenging operating environment, particularly its profitability and funding. Moody's expects the bank's asset quality to weaken from a negligible level of problem loans (at 0.4% of gross loans at June-2017), dampening its modest net profitability. The bank's loss absorption capacity is supported by high provisioning coverage and good capitalisation. Turk Exim's capitalisation has weakened for the last three years (Moody's adjusted Tangible Common Equity ratio has declined from 18.2% at end-2015 to 14.6% at end-2017) and may decline further due to loan growth and/or foreign currency volatility. Turk Exim's dependence on wholesale funding remains significant given its wholesale funding profile, but with refinancing risk mitigated by funding from the Central Bank or government-guaranteed.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113601.

The Local Market analyst for Turk Ekonomi Bankasi A.S., Alternatifbank A.S., QNB Finansbank AS and ING Bank A.S. (Turkey) ratings is Nitish Bhojnagarwala, +971.4.237.9563.

REGULATORY DISCLOSURES

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_198592 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:

• Releasing Office

• Person Approving the Credit Rating

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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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 rating analyst and the Moody's legal entity that has issued the ratings.

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
Client Service: 44 20 7772 5454

Sean Marion
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454

No Related Data.
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