Capital Intelligence (CI) has affirmed the ratings of TÜrkiye Cumhuriyeti Ziraat Bankasi A.S. (TCZB or Ziraat) based in
The rating is constrained by recent significant deterioration in capital ratios, most especially its Basel II CAR, continuing high non-performing loan (NPL) net accretion rate and sharp increases in restructured and rescheduled loans. Supported and constrained by the same factors, the Long-Term Foreign Currency Rating of 'BB+' and the Short-Term Foreign Currency Rating of 'B', both constrained by the sovereign rating, are affirmed with a 'Stable' Outlook. However, continued deterioration in the Bank's capital profile or liquidity could exert downward pressure on the ratings and/or the Outlook. Because of the Bank's ownership, support from its sole shareholder (the Turkish Treasury) is expected to be forthcoming in the event it is needed. Consequently, the Support Level remains at '2.'
TCZB has undertaken a strategic plan designed to utilise some of the Bank's historically high liquidity and increase its earnings profile. The plan has had success in the latter, whilst the effects on the balance sheet have been mixed. As net loans have grown at sometimes robust rates (especially in 2013), there has been strain on TCZB's capital ratios, asset quality and to some extent its liquidity.
Somewhat limited in its ability (as a state-owned institution) to increase capital, most ratios have been trending down in the past three years, and in 2013 the greatest effect was felt in the Bank's Basel II CAR – which moved from the peer group's second-best in 2012 to its second-lowest in 2013 as the loan book expanded rapidly. Moreover, that ratio was barely above the regulatory recommendation, which is likely to impede the Bank's ability to grow in the future. That said, a revaluation of tangible assets in Q1 2014 served to return the CAR to previous levels.
The record in respect of NPLs has been somewhat better; after a sharp increase in NPLs in 2012, the situation improved in 2013 as the estimated NPL net accretion rate dropped from the very high level of 2012. While the Bank's NPL ratio and coverage remain significantly better than the peer-group average, a potential problem exists in the Bank's restructured/rescheduled loans, which grew at a very high rate last year.
Because of the limited ability to raise capital, the Bank must rely to a great extent on net profit to boost its capital base. Fortunately, TCZB reports one of the sector's highest ROAAs, highlighted by sound cost ratios (despite recent strong rises in operating expenses), a low cost of risk and improving performance as to non-interest income, which showed a sound increase in 2013.
The loan growth has had an effect on the Bank's hitherto strong liquidity, but so far that has generally been minimal, and the strength of the Bank's liquidity has been such that it could easily absorb the change. Despite the fact that customer deposit growth and capital growth did not match the growth in loans, loan-based liquidity ratios remain by far the best in the peer group. This was also the case with regard to the liquid asset ratio and the net liquid asset ratio. However, the shortfall created by the slower customer deposit growth was filled by increased usage of the interbank market, to the point where that dependence could become an area of concern.
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