News Column

Moody's takes rating actions on 11 Turkish banks

June 16, 2014



Moody's Investors Service has today taken rating

actions on 11 Turkish banks. The two key drivers of the rating action are

(1) pressures on the standalone credit strength of some of the

institutions; and (2) Moody's reassessment of the level of systemic

support that it believes should be incorporated into some of the banks'

senior ratings.

Today's rating actions conclude the reviews for downgrade initiated in

March 2014.

Issuers affected by this rating action are: Akbank T.A.S.; Asya Katilim

Bankasi A.S.; Denizbank A.S.; Sekerbank T.A.S.; T.C. Ziraat Bankasi

A.S.; Turk Ekonomi Bankasi A.S.; Turkiye Garanti Bankasi A.S.; Turkiye

Halk Bankasi A.S.; Turkiye Is Bankasi A.S.; Turkiye Vakiflar Bankasi

T.A.O.; Yapi Ve Kredi Bankasi A.S.. A summary of today's actions is

available at http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_171422,

which is an integral part of this press release and identifies each

affected issuer.

RATINGS RATIONALE

--- STANDALONE CREDIT STRENGTH

The first driver of the rating actions reflects Moody's assessment

regarding pressures on some Turkish banks' standalone credit strength,

as a result of an increasingly challenging operating environment, which

is expected to persist for the next 12-18 months due to (1) a slowdown in

real GDP growth; (2) higher funding costs; and (3) a climate of

uncertainty affecting the banks.

Moody's expects that, in these conditions, Turkish banks' asset quality

and profitability will weaken and that liquidity will tighten.

Additionally, the banks will increasingly need to adapt to a

capital-optimising lending model, against the background of moderate GDP

growth and persistently high funding costs, coupled with weakening

capital adequacy, as credit growth outpaces internal capital generation.

The highly unseasoned loan books add further elements of credit risk.

Moody's also says that the future growth of the banking system will

increasingly depend on market funding, which increases banks'

sensitivity to investor sentiment and wholesale market dynamics.

Moody's forecasts lower near-term GDP growth and growing uncertainty

about medium-term growth trends. The rating agency forecasts that GDP

growth will slow to 2.5% in 2014 and 2.9% in 2015 from 4% last year.

Meanwhile, higher funding costs have arisen from (1) the impact that the

US Federal reserve's tapering programme is having on emerging markets;

and (2) the economic recovery in developed markets. Both these factors

are tightening global liquidity. Furthermore, uncertainty stems from

Turkey's above-target inflation, exchange-rate volatility, and the impact

of current political developments.

--- SENIOR DEBT AND DEPOSIT RATINGS

The second driver of the rating actions is Moody's reduced expectation of

the level of systemic support, which it believes should be incorporated

in Turkish banks' deposit and senior debt ratings. This view takes into

account the fact that the banking system and its financial obligations

have grown significantly in relation to GDP in recent years, and will

continue to do so, increasing the potential cost of any government

support, in case of need. The charged domestic political environment and

less predictable policy responses add additional elements of uncertainty.

Moody's review assessed Turkey as a supportive country toward its banking

system; however, the sovereign rating now marks the highest rating that a

Turkish bank can achieve through systemic support. This assessment

reflects the fact that the banks' higher reliance on market funds has

eroded some of the banking system's previously strong elements of

protection against market turbulence. Furthermore, since 2010, the

system's leverage has gradually increased to 9x from 8x (Tier 1 ratio

declined to 13.4% from 17.1%) as growth has outpaced internal capital

generation. As at year-end 2013, the Turkish banking system's total

assets and loans had grown by 72% and 99%, respectively, since 2010,

resulting in higher reliance on market funds and a shift from liquid

assets to loans, thereby raising the loan-to deposit-ratio to 114% as at

year-end 2013 (88%: year-end 2010).

Overall, Moody's views the above-mentioned developments as manageable for

Turkish banks. However, as the banking system continues to grow, the

rating agency notes that the potential cost of any government support, in

case of need, will increase, reducing the predictability of policy

responses in such a situation.

--- NATIONAL SCALE RATINGS

For three banks, Moody's downgraded the NSRs as they map directly to the

banks' global local-currency (GLC) deposit ratings, which were

downgraded. For one bank, Moody's confirmed the NSRs following the

confirmation of the bank's GLC deposit ratings.

--- FOREIGN-CURRENCY SUBORDINATED DEBT RATINGS

Rating actions on the subordinated debt ratings of the affected banks

follow the rating actions on the banks' adjusted BCAs which, in most

cases, are equivalent to the banks' standalone BCAs (subordinated debt

ratings are positioned one notch below the relevant adjusted BCAs).

WHAT COULD MOVE THE RATINGS UP/DOWN

Rating-stabilising factors over the next 12-18 months could include any

evidence of improvement in the operating environment and external

liquidity conditions available towards emerging markets, and Turkey in

particular. These developments would strengthen the banking system's

performance.

Conversely, further downward pressure on the banks' ratings could develop

if (1) the operating environment causes further significant deterioration

in profitability or asset quality; or (2) market access becomes

increasingly restricted or costly for a prolonged period. A lowering of

banks' BCAs -- or a lower level of systemic support incorporated in the

banks' ratings -- could prompt a downgrade of the long-term deposit and

debt ratings. A downgrade of Turkey's government bond rating would also

lead to a downgrade of some banks' debt and deposit ratings.

LIST OF TODAY'S RATING ACTIONS

Moody's took the following rating actions today:

--- Akbank TAS

BFSR affirmed at D+

BCA lowered to ba1 from baa3

Long- and short-term LC deposit ratings downgraded to Baa3/Prime-3 from

Baa2/Prime-2

Long- and short-term FC deposit ratings confirmed at Baa3/Prime-3

LC and FC senior debt rating downgraded to Baa3 from Baa2

The deposit and senior debt ratings carry a negative outlook, in line

with the sovereign bond rating, while the BFSR carries a stable outlook

The downgrade of Akbank's LC deposit ratings and LC and FC senior debt

ratings reflects (1) the lowering of bank's standalone BCA; and (2)

Moody's adjusted systemic support assumptions. The FC deposit ratings

were confirmed at Baa3/P-3, being previously constrained at those levels

by the applicable sovereign ceiling. The LC and FC senior ratings are now

fully aligned. The bank's senior ratings benefit from one notch of rating

uplift, due to systemic support, from its BCA of ba1.

The lowering of the BCA reflects the operating environment pressures and

the rating agency's expectation of a weakening trend in the bank's

credit profile, as loan growth will continue to outpace internal capital

generation. The stable outlook on the BFSR reflects Moody's view that the

bank, however has significant resilience to the operating environment,

supported by its strong franchise, strong core capital base, granular

deposit funding profile with moderate reliance on market funds.

--- Asya Katilim Bankasi A.S. (Bank Asya)

BFSR lowered to D- from D

BCA lowered to ba3 from ba2

Long-term LC and FC deposit ratings downgraded to Ba2 from Ba1

FC subordinated debt rating (issued under Asya Sukuk Company Limited)

downgraded to B1 from Ba3

NSR downgraded to A3.tr/TR-2 from A2.tr/TR-1

The LC and FC deposit ratings carry a negative outlook, in line with the

sovereign bond rating, while the BFSR and FC subordinated debt rating

carry a stable outlook.

The downgrade of the senior ratings of Bank Asya follows the lowering of

the BCA and continue to include one notch of rating uplift, due to

systemic support. The lowering of the BCA reflects operating environment

pressures and credit challenges specific to the bank. These include its

deposit base volatility early in the year that resulted in a 15%

reduction in the balance sheet in the first quarter of 2014, weak asset

quality with NPLs and impaired loans significantly above the system

average, and tighter liquidity indicators.

The stable outlook on the BFSR reflects the bank's solid core Tier 1

capital and the increased deposit-base granularity, which reduces

sensitivity to future depositors' behaviour. The downgrade of the FC

subordinated debt rating and its stable outlook follow the downgrade of

bank's BFSR that resulted in the lowering of the BCA by one notch, as the

subordinated debt rating is positioned one notch below the BCA.

--- Denizbank A.S.

BFSR lowered to D- from D+

BCA lowered to ba3 from ba1

Long and short-term LC and FC deposit ratings to Ba1/Not-Prime from

Baa3/Prime-3

The outlook on all the ratings is stable.

The downgrade of the senior ratings reflects the lowering of the BCA, and

Moody's assessment of a high probability of parental support from

majority shareholder Sberbank (deposits Baa1 under review for downgrade,

BFSR D+, stable/BCA baa3). This provides two notches of rating uplift to

the deposit rating. Moody's assumption of a high probability of systemic

support does not provide additional rating uplift.

The downgrade of the BFSR by two notches reflects the operating

environment pressures and Moody's view of Denizbank's evolving risk

management based on (1) increasing levels of commercial lending with new

product offerings; and (2) high loan-book growth that could pose

challenges in the form of processes and controls.

Additionally, Moody's considers that Denizbank's very lean

capitalisation, with a Tier 1 ratio of 8% (system average of 13%),

provides a limited buffer against potential losses. Furthermore, without

periodic capital injections from Sberbank, the bank's franchise expansion

plans would be challenged.

The stable outlook reflects that Moody's expectation that the weakening

trend of the bank's credit profile should remain contained, consistent

with the assigned BCA level and the stable outlook on Sberbank's BFSR.

--- Sekerbank T.A.S.

BFSR lowered to D- from D

BCA lowered to ba3 from ba2

Long-term LC and FC deposit ratings downgraded to Ba2 from Ba1

NSR downgraded to A3.tr/TR-2 from A2.tr/TR-1

The outlook on all the ratings is negative.

The downgrade of the LC and FC deposit ratings and the NSR reflects the

lowering of the bank's BCA, and these ratings continue to benefit from

one notch of rating uplift, due to systemic support. The negative outlook

reflects the negative outlook on the sovereign bond rating and

Sekerbank's BFSR.

The downgrade of Sekerbank's BFSR and its negative outlook reflect its

weak capital position, asset-quality erosion and its more vulnerable

loan-segment composition. Furthermore, as a result of high operational

and credit costs, the bank's bottom-line profitability indicator lags the

system average, despite strong margins.

--- T.C. Ziraat Bankasi AS (Ziraat)

BFSR confirmed at D+

BCA maintained at ba1

Long and short-term LC deposit ratings downgraded to Baa3/Prime-3 from

Baa2/Prime-2

Long and short-term FC deposit ratings confirmed at Baa3/Prime-3

The outlook on all the ratings is negative.

The downgrade of the LC deposit ratings reflects Moody's adjusted

systemic support assumptions. The confirmation of the FC deposit ratings

at Baa3/Prime-3, reflects it being previously constrained at those levels

by the applicable sovereign ceiling. The LC and FC senior ratings are now

fully aligned. The senior ratings benefit from one notch of rating

uplift, due to systemic support, from its BCA of ba1. The negative

outlook on the ratings reflects the negative outlook on the BFSR and the

government bond rating.

The confirmation of the BFSR, with the BCA maintained at ba1, reflects

Ziraat's strong nationwide franchise, solid granular core deposit funding

profile -- with low reliance on market funding -- and its moderate asset

quality. The negative outlook on the BFSR reflects Moody's view of

Ziraat's evolving risk-management practices based on (1) increasing

levels of commercial lending with new product offerings, particularly in

consumer credit; and (2) high loan book growth that could pose challenges

in the form of processes and controls.

--- Turk Ekonomi Bankasi AS

BFSR lowered to D from D+

BCA lowered to ba2 from ba1

Long and short-term LC and FC deposit ratings confirmed at Baa3/Prime-3

The outlook on FC deposit rating is negative and on remaining ratings is

stable.

The confirmation of the LC and FC deposit ratings reflects Moody's

assessment of a high probability of support from majority shareholder

BNP Paribas group (deposits A1 negative, BFSR C-, stable/BCA baa1),

which offsets the impact on senior ratings of the one notch lowering of

the BCA. Turk Ekonomi Bankasi's deposit ratings now benefit from two

notches of rating uplift from parental support (one previously) from its

BCA of ba2.

The downgrade of the BFSR by one notch reflects the expected impact of

the operating environment pressures. Moody's also believes that Turk

Ekonomi Bankasi is at a disadvantage compared with higher-rated peers.

This is because of (1) its leaner (but adequate) Tier 1 capital level;

(2) moderate operational efficiency and market share; (3) and weaker

bottom-line profitability. The stable outlook on the BFSR reflects

Moody's view that the bank's assigned BFSR reflects its resilience to the

challenges of the operating environment. The gradual improving trend in

the operational efficiency of the bank should limit the deterioration in

the credit profile of the bank.

The negative outlook on the FC deposit rating reflects the negative

outlook on Turkish government bond rating and is constrained by it. The

stable outlook on Turk Ekonomi Bankasi's remaining ratings reflects the

stable outlook on the bank's and its parent's BFSRs.

--- Turkiye Garanti Bankasi AS (Garanti)

BFSR affirmed at D+

BCA lowered to ba1 from baa3

Long and short-term LC deposit ratings downgraded to Baa3/Prime-3 from

Baa2/Prime-2

Long and short-term FC deposit ratings confirmed at Baa3/Prime-3

LC and FC senior debt ratings downgraded to Baa3 from Baa2

Long-term NSR downgraded to Aa3.tr from Aa2.tr, short-term NSR confirmed

at TR-1

The deposit and senior debt ratings carry a negative outlook in line with

the sovereign bond rating, while the BFSR carries a stable outlook.

The downgrade of Garanti's LC deposit ratings and LC and FC senior debt

ratings reflects (1) the lowering of bank's standalone BCA; and (2)

Moody's adjusted systemic support assumptions. The FC deposit ratings

were confirmed at Baa3/P-3, being previously constrained at those levels

by the applicable sovereign ceiling. The LC and FC ratings are now fully

aligned. The bank's senior ratings benefit from one notch of rating

uplift, due to systemic support, from its BCA of ba1.

The lowering of the BCA reflects the operating environment pressures and

the rating agency's expectation of a weakening trend in the bank's

credit profile, as loan growth will continue to outpace internal capital

generation. The stable outlook on the BFSR reflects Moody's view that the

bank is however resilient to the operating environment, supported by its

strong franchise, strong core capital base, and granular deposit funding

profile with low reliance to market funds.

--- Turkiye Halk Bankasi A.S. (Halk Bank)

BFSR affirmed at D+

BCA lowered to ba1 from baa3

Long- and short-term LC deposit ratings downgraded to Baa3/Prime-3 from

Baa2/Prime-2

Long- and short-term FC deposit ratings confirmed at Baa3/Prime-3

FC senior debt rating downgraded to Baa3 from Baa2

The deposit and senior debt ratings carry a negative outlook, in line

with the sovereign bond rating, while the BFSR carries a stable outlook.

The downgrade of Halk Bank's LC deposit and FC senior debt ratings

reflects (1) the lowering of bank's standalone BCA; and (2) Moody's

adjusted systemic support assumptions. The FC deposit ratings were

confirmed at Baa3/P-3, being previously constrained at those levels by

the applicable rating ceiling. The LC and FC senior ratings are now fully

aligned. The bank's senior ratings benefit from systemic support,

resulting in a one-notch of rating uplift, due to systemic support, from

its BCA of ba1.

The lowering of the BCA reflects the operating environment pressures and

the rating agency's expectation of a weakening trend in the bank's

credit profile, as loan growth will continue to outpace internal capital

generation. The affirmation of Halk Bank's BFSR with a stable outlook

reflects Moody's view that, despite the expected deterioration in the

bank's performance caused by the challenging operating environment,

Moody's views the bank as having more inherent resilience to the

operating environment, supported by its strong franchise, loan book

composition, strong core capital base, and granular deposit funding

profile with low reliance to market funds.

--- Turkiye Is Bankasi AS (Isbank)

BFSR affirmed at D+

BCA lowered to ba1 from baa3

Long and short-term LC deposit ratings downgraded to Baa3/Prime-3 from

Baa2/Prime-2

Long and short-term FC deposits ratings confirmed at Baa3/Prime-3

FC senior debt rating downgraded to Baa3 from Baa2

FC subordinated debt rating downgraded to Ba2 from Ba1

All senior ratings carry a negative outlook in line with the sovereign

bond rating, while the BFSR and the subordinated debt rating carry a

stable outlook.


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