(The following statement was released by the rating agency)MOSCOW/LONDON, June 03 (Fitch) Fitch Ratings has assigned Iller Bankasi A.S. (Iller Bank) a Long-Term foreign currency Rating of 'BBB-', a Long-Term local currency Rating of 'BBB', National Long-Term Rating of 'AAA(tur)' and a Short-Term foreign currency Rating of 'F3'. The Outlooks on the Long-Term ratings are Stable.KEY RATING DRIVERSThe ratings are aligned to those of the sovereign and reflect Iller Bank's special status, unique funding model, strategic importance and hence potential government support. Fitch uses its public-sector entities criteria and applies a top-down approach in its analysis of Iller Bank.Iller Bankasi A.S. (Iller Bank) was established in 1933 by a decree of the founder of the Turkish Republic and a special law as an urban development institution. Its goals were not restricted to financial services and include provision of project development, engineering, technical and consultancy services to municipalities. Shareholders of Iller Bank are all of the 81 provisional special administrations and 2,950 municipalities of Turkey.National regulation establishes that Iller Bank receives monthly capital injections at 2% of the tax incomes of municipalities distributed by the Ministry of Finance. Thus, Fitch views the bank's credit strength linked with the sovereign. Revision of this funding mechanism would lead the agency to change its rating approach. Iller Bank's equity increases by about TRY700m (USD387m) annually as a result of monthly capital injections. Thus, the bank has exceptionally strong equity/assets ratio of about 80%.Iller Bank is a non-deposit-taking bank and non-equity liabilities are represented by long-term loans from international banks and international financing institutions (IFIs). These are guaranteed by the Treasury. IFI funds are on-lent to municipalities mirroring maturities and currencies, mitigating liquidity, interest rate and currency risks faced by Iller Bank.Iller Bank provides loans to local governments and municipal enterprises only. The latter can borrow from Iller Bank upon provision of municipal guarantees. Iller Bank can ensure timely collection of dues from the borrowers as a large amount of tax revenue is distributed to all Turkish municipalities through Iller Bank. Iller Bank has no non-performing loans and accrues negligible impairment reserves.Iller Bank has no profit-maximisation objective, but its unique operating model ensures profitability. Iller Bank's funding costs are marginally above 0% per annum reflecting the bank's reliance on zero-cost equity-based funding. Yet Iller Bank provides interest-earning loans to its borrowers, whose tax revenues pass through Iller Bank and can be withheld to service borrowers' debt.Iller Bank has high levels of cash as a significant amount of municipal funds regularly pass though the bank. Its average monthly liquidity exceeded TRY3bn in 2012. The bank plays an active role in the Turkish banking sector as a facilitator of liquidity. It utilises short-term liquidity instruments such as overnights strictly with state-owned Turkish banks. RATING SENSITIVITIESThe ratings of Iller Bank mirror those of the Turkish sovereign. A positive rating action would result from an upgrade of Turkey. Conversely, any negative rating action on Turkey or weakening of operating, strategic and financial links of Iller Bank with the state would lead to a downgrade.A credit analysis on Iller Bank will shortly be available at 
  www.fitchratings.com.
 Contacts:Primary AnalystBehruz IsmailovAssociate Director+7 495 956 9980Fitch Ratings CIS Limited26 Valovaya StreetMoscow, 115054 Secondary AnalystGuido BachSenior Director+49 69 76 807 6111Committee ChairpersonVladimir RedkinDirector+7 495 95670 64Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: julia.belskayavontell@fitchratings.com; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com.Additional information is available at 
  www.fitchratings.com.
 Applicable criteria, 'Tax-Supported Rating Criteria', dated 14 August 2012 and 'Rating of Public Sector Entities Outside the United States', dated 4 March 2013, are available at 
  www.fitchratings.com.
 Applicable Criteria and Related Research: Tax-Supported Rating Criteria 
  http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
 Rating of Public Sector Entities - Outside the United States
  http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=701963
 Additional Disclosure Solicitation Status 
  http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=792721
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