(The following statement was released by the rating agency)LONDON, November 12 (Fitch) Fitch Ratings has affirmed the support-driven Issuer Default Ratings (IDR) of seven Turkish banks. The banks include five state-owned banks and two banks owned by more highly rated foreign banks. The rating actions follow the recent affirmation of Turkey's sovereign ratings (see 'Fitch Affirms Turkey at 'BBB-', Outlook Stable', 24 October 2013). A full list of rating actions is provided at the end of this rating action commentary. Fitch will separately review the Viability Ratings (VR) of these banks. KEY RATING DRIVERS - IDRS, NATIONAL RATINGS, SUPPORT RATINGS, SUPPORT RATING FLOORS AND SENIOR DEBT RATINGS OF FIVE STATE-OWNED BANKSThe IDRs and senior debt ratings of the five state-owned banks - T. C. Ziraat Bankasi A.S. (Ziraat), Turkiye Halk Bankasi A.S. (Halkbank), Turkiye Vakiflar Bankasi T.A.O. (Vakifbank), Turkiye Kalkinma Bankasi A.S. (TKB) and Turkiye Ihracat Kredi Bankasi A.S. (Turk Eximbank) - are aligned with those of the Turkish sovereign.This reflects Fitch's opinion that the probability of state support for these banks in case of need is high. This in turn reflects their state ownership, systemic importance (in the cases of Ziraat, Halkbank and Vakifbank), policy roles (most notably for Turk Eximbank and TKB), the track record of support to date and the still moderate size of the banks relative to Turkey's GDP. The degree of state ownership at the five banks varies. Turk Eximbank, Ziraat and TKB are fully state-owned, while state ownership at Halkbank (51%) and Vakifbank (58%) is lower. However, Fitch believes there are currently no plans to further privatise Halkbank and Vakifbank and expects them to remain majority state-owned for the foreseeable future.Fitch views the systemic importance of Ziraat, Halkbank and Vakifbank as high as they have deep franchises and extensive nationwide branch networks, and together control one-third of the country's customer deposits. Ziraat and Halkbank are the sole distributors of subsidised loans to the agricultural and SME sectors, respectively, although these represent a moderate proportion of the banks' total lending. In addition, only state-owned commercial banks are eligible to receive savings deposits from state-owned companies and entities and only these banks pay out state pensions. High-ranking government officials have recently also encouraged retail depositors to move deposits to state-owned banks. TKB and Turk Eximbank are not commercial banks, but development institutions with primary policy roles. TKB specialises in the provision of long-term development finance while Turk Eximbank is the country's official export credit agency and implements the government's official export strategies. The latter enjoys privileges, notably Treasury compensation of losses suffered as a result of political risks, and exemption from corporate taxes and loan loss reserve requirements. The Turkish Treasury also guarantees most funding at TKB and also when required provides guarantees for Turk Eximbank's funding.Turkey's banking sector remains moderate in size, and the combined assets, loans and equity of the five state-owned banks covered in this commentary were equal to, respectively, 30%, 16% and 3% of GDP at end-June 2013. The five banks' foreign funding was equal to a significant 16% of Turkey's projected foreign currency reserves at end-2013, but reasonable diversification of this funding by maturity and source means that even in a systemic crisis the sovereign is unlikely to have to cover the majority of these obligations in a short space of time, in Fitch's view.Turkey, as a member of the G20 countries, has endorsed principles aimed at shifting the onus of bailing out banks in future away from taxpayers. Furthermore, the Banking Regulation and Supervision Agency (BRSA), the Savings Deposit Insurance Fund (SDIF) and the Central Bank are discussing the introduction of resolution legislation in Turkey. However, in Fitch's view, adoption of such legislation is unlikely to be imminent, and ties between the government and state-owned banks are likely to remain strong for the foreseeable future. The current banking law includes provisions regarding rehabilitation, corrective and other measures to be adopted in respect of ailing banks but does not provide for statutory bailing in of creditors. National ratings are assigned by Fitch based on a matrix which references Local Currency Long-term IDRs. The corresponding National Long-term Ratings for the state-owned banks are 'AAA(tur)', indicating that these are the best relative credit risks in Turkey. RATING SENSITIVITIES - IDRS, NATIONAL RATINGS, SUPPORT RATINGS, SUPPORT RATING FLOORS AND SENIOR DEBT RATINGS OF FIVE STATE-OWNED BANKSAn upgrade or downgrade of Turkey's sovereign ratings (not currently expected given the Stable Outlook) would likely result in similar rating actions on each of the five state-owned banks.The Support Ratings and Support Rating Floors (SRFs) of Ziraat, Halkbank and Vakifbank could also be downgraded in case of (i) the introduction of resolution legislation in Turkey which seeks to limit the use of public funds to rescue failed banks, including state-owned institutions; (ii) the privatisation of the banks (this would likely result in a one notch downgrade of SRFs to 'BB+', the same level as the SRFs of the largest privately-owned banks unless privatisation results in the banks being owned by a strong shareholder); or (iii) any significant reduction in the sovereign's financing flexibility which would limit its ability to provide support to the banking sector. However, downgrades of Support Ratings and SRFs would not by themselves lead to downgrades of the banks' Long-term foreign currency IDRs and senior debt, as these are underpinned at the 'BBB-' level by the Viability Ratings of Ziraat, Halkbank and Vakifbank, reflecting their standalone strength. Privatisation would result in a decoupling of state-owned banks' ratings from those of the sovereign. KEY RATING DRIVERS AND SENSITIVITIES - IDRS, NATIONAL RATINGS, SUPPORT RATINGS AND SUKUK RATINGS OF KUVEYT TURK AND TURKIYE FINANSThe ratings of Kuveyt Turk Katilim Bankasi A.S. (Kuveyt Turk) and Turkiye Finans Katilim Bankasi A.S. (Turkiye Finans) are based on Fitch's view of the high probability of support being available from their majority shareholders, namely Kuwait Finance House and National Commercial Bank, respectively (both rated A+/Stable). Fitch believes the Turkish subsidiaries are strategically important to their parents and that integration between parent banks and subsidiaries is high.The Long-term foreign currency IDRs of Kuveyt Turk and Turkiye Finans are constrained by Turkey's 'BBB' Country Ceiling and broader Turkish country risks and are sensitive to any changes in the Ceiling, Turkey's sovereign ratings or Fitch's view of these risks. The banks' ratings could also be downgraded in case of a multi-notch downgrade of one of the parent banks, or a marked reduction in the strategic importance of either of the subsidiaries for their parents, but neither of these is currently anticipated by Fitch. The rating actions are as follows: T. C. Ziraat Bankasi A.S., Turkiye Halk Bankasi A.S., Turkiye Vakiflar Bankasi T.A.O., Turkiye Kalkinma Bankasi A.S., Turkiye Ihracat Kredi Bankasi A.S.: Long-term foreign currency IDR: affirmed at 'BBB-'; Stable OutlookLong-term local currency IDR: affirmed at 'BBB'; Stable Outlook Short-term foreign and local currency IDR: affirmed at 'F3' Support Rating: affirmed at '2'Support Rating Floor: affirmed at 'BBB-'National Long-term Rating: affirmed at 'AAA(tur)'; Stable OutlookSenior unsecured debt issues (Halkbank, Vakifbank): affirmed at 'BBB-'Viability Ratings (Ziraat, Halkbank and Vakifbank): unaffected at 'bb+'Kuveyt Turk Katilim Bankasi A.S. and Turkiye Finans Katilim Bankasi A.S.: Long-term foreign currency IDR: affirmed at 'BBB'; Stable OutlookLong-term local currency IDR: affirmed at 'BBB+'; Stable OutlookShort-term foreign currency IDR: affirmed at 'F3'Short-term local currency IDR: affirmed at 'F2'Support Rating: affirmed at '2'National Long-term Rating: affirmed at 'AAA(tur)'; Stable OutlookViability Rating: unaffected at 'bb-' TF Varlik Kiralama A.S., KT Sukuk Varlik Kiralama A.S.Senior unsecured debt issues (sukuk): affirmed at 'BBB'Contacts: Primary AnalystsJanine Dow (Halkbank, Turk Eximbank, Kuveyt Turk, Turkiye Finans)Senior Director+44 20 3530 1464Fitch Ratings Limited30 North ColonnadeLondon E14 5GN Banu Cartmell (Ziraat, TKB, Vakif
bank)Director44 203 530 1109Fitch Ratings Limited30 North ColonnadeLondon E14 5GN Secondary Analysts Janine Dow (TKB, Ziraat, Vakifbank)Senior Director+44 203 530 1464 Banu Catmell (Halkbank, Turk Eximbank, Kuveyt Turk, Turkiye Finans) Director+ 44 203 530 1109Committee ChairpersonJames WatsonManaging Director+7 495 956 6657Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com.Additional information is available onwww.fitchratings.com. Applicable criteria, 'Global Financial Institutions Rating Criteria' dated 15 August 2012, 'Rating FI Subsidiaries and Holding Companies' dated 10 August 2012, 'Rating Financial Institutions Above the Sovereign' dated 12 December 2912, 'National Scale Ratings Criteria' dated 30 October 2013, 'Country Ceilings' dated 9 August 2013, 'Assigning Ratings to Bank Subordinated and Hybrid Securities' dated 5 December 2012 and 'Rating Sukuk' dated 9 August 2013 are available atwww.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteriahttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181 Rating FI Subsidiaries and Holding Companieshttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209 National Scale Ratings Criteriahttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082 Country Ceilingshttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715618 Additional Disclosure Solicitation Statushttp://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=807772 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
