Capital Intelligence (CI) today announced that it has raised the ratings of
Ratings are constrained by the Bank's size, erratic patterns in net profit exacerbated by a high cost structure, the continual increase in restructured and rescheduled loans and the lack of disclosure. For the same reasons, the Long-Term Foreign Currency Rating is raised to 'bb' from 'bb-' and the Short-Term Foreign Currency Rating is affirmed at 'b'. All ratings carry a 'Stable' Outlook. In light of the Bank's ownership and a reasonable expectation of support from its major shareholders, the Support Rating is also maintained at '3'.
Rapid loan growth in recent years has generally been matched by strong growth in customer deposits. Where deposit growth has trailed, the Bank has received support from shareholders in the form of forgoing dividends, as well as cash injection of capital in 2011 and 2013 – which has had the added benefit of allowing the Bank to maintain strong capital ratios, including one of the best CARs in the sector.
In a banking sector which displays extremely high loan-based liquidity ratios, TLB is much more conservative. While those ratios are still somewhat high in a global context, they are better – in some cases significantly better – than those of its peers, and those ratios generally moved in the right direction last year. The liquid asset ratio is also very sound and is offset only slightly by a sizeable stock of interbank deposits. However, the level is not such as to indicate dependence.
The loan growth generated by that deposit growth has resulted in generally good asset quality. The non-performing loan (NPL) ratio – despite an occasional upward spike – was lower than the peer-group average last year, when the net accretion rate was relatively low. While coverage is not full, it is almost so. With a boost from a strong free capital position, the Bank's effective coverage ratio is very sound. That said, the Bank has experienced what most other Turkish banks have observed – a second consecutive year of strong growth in restructured and rescheduled loans.
The Bank's earnings profile at the gross income level is somewhat volatile, with 2013 displaying a modest increase in net interest income (the result of a reduction in the NIM) and a drop in non-interest income. While gross income growth was still positive, the Bank's perennial high cost structure was the main cause behind a decline in operating profit last year. Despite sharply lower provisioning expenses, the growth in net profit was limited.
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