July 2 - Fitch Ratings has affirmed the Long-term foreign currency Issuer Default Ratings (IDRs) of Turkey's four largest privately-owned banks - Turkiye Is Bankasi A.S.ISCTR.IS (Isbank), Turkiye Garanti Bankasi A.S.GARAN.IS (Garanti), Akbank T.A.S.AKBNK.IS (Akbank) and Yapi ve Kredi Bankasi A.S.YKBNK.IS (Yapi Kredi) - at 'BBB-'. At the same time, Fitch has affirmed the ratings of several of their subsidiaries whose ratings are driven by parental support. A full list of rating actions is at the end of this comment. The four banks' foreign currency IDRs are driven by their standalone financial strength, reflected in their Viability Ratings (VRs), all at 'bbb-'. The IDRs of Yapi Kredi, a 50-50 joint venture between UniCredit S.p.A. (UC; 'A-'/Negative) and Koc Holding, are also underpinned by potential support, if needed, from UC. The banks' ratings reflect their broad and stable franchises; sound financial metrics, in terms of capitalisation, asset quality, performance and liquidity; generally strong management and risk management, in particular for emerging market banks; and the relatively low level of systemic risks and imbalances in the Turkish banking sector as a whole. At the same time, Fitch's analysis of the banks also takes into account the still relatively high sovereign risks (Turkey is rated 'BB+'/Stable) and considerable volatility in the country's macroeconomic indicators; the sharp ongoing slowdown in domestic economic growth following a rapid credit build up at the banks in 2011; and the high proportion of foreign currency loans in corporate portfolios at all four banks (albeit this is significantly mitigated by the hedged currency positions of many borrowers). Fitch's base case expectation remains that the Turkish economy will achieve a 'soft landing' in 2012, although the agency forecasts GDP growth to slow to 2.8% from 8.5% in 2011, before rising again to 4.5% in 2013. The four banks' asset quality will probably weaken as loan books start to season in a less benign economic environment, but in Fitch's view the deterioration should be moderate, given still positive economic growth, generally sound credit underwriting, the still moderate degree of leverage in both corporate and household sectors and the absence of any marked asset price bubbles. At end-Q112, the banks reported non-performing loan ratios between 1.6% (Akbank) and 3% (Yapi Kredi). Fitch expects profitability in 2012 to moderate somewhat from levels reported in 2011 (return on average assets of 2%-2.2% at Akbank, Garanti and Yapi Kredi; 1.4% at Isbank), mainly due to lower credit growth, normalisation of loan impairment charges and lower fee income. However, internal capital generation should still be relatively robust, and broadly in line with the more moderate credit growth targeted in 2012 (circa. 15%) at the four banks, compared to 27%-43% in 2011). Capitalisation and liquidity are generally comfortable at each of the four banks, but following the recent credit expansion these are no longer the marked rating strengths as they were two-three years ago. Fitch core capital ratios at end-Q112 were strongest at Akbank (15.6%) and Garanti (14.7%), a solid 13% at Isbank and a more moderate 10.7% at Yapi Kredi. Loan/deposit ratios were between 109% and 113% at Akbank, Garanti and Isbank, and a slightly higher 121% at Yapi Kredi, reflecting access to UC funding. Fitch rates the four banks above the Turkish sovereign, reflecting their relatively strong credit profiles, and the agency's view that they would probably be sufficiently robust to remain solvent and liquid even in case of a high level of sovereign/macroeconomic stress. At the same time, Fitch caps the banks' VRs at 'bbb-', one notch above the sovereign IDRs, due to their inevitably high exposure to the domestic economy and the banks' large holdings of government debt. If the sovereign is upgraded (not anticipated at present, given the Stable Outlook) reflecting a moderation of macroeconomic risks, and the banks' stand-alone credit metrics remain robust, then the VRs and IDRs of Akbank, Garanti and Isbank could also be upgraded, to 'BBB'. Yapi Kredi's foreign currency Long-term IDR is currently constrained by Turkey's Country Ceiling of 'BBB-', and could also be upgraded to 'BBB' if the sovereign rating and Country Ceiling are raised, reflecting potential support from UC. The four banks' IDRs and VRs would likely be downgraded in case of a lowering of the sovereign rating and Country Ceiling. Isbank is the largest bank in Turkey with 14% share in assets and a broad and diversified franchise. Isbank Group is a financial conglomerate, where Isbank is the main financial body. The bank is 40.43% owned by the Isbank Pension Fund and 31.48% is broadly held at end-2011. A 28.09% stake (commonly known as the Ataturk shares) is held by the Republican People Party, with restricted ownership rights, in particular as regards receipt of dividends. Garanti is the second largest private bank with a 13% share in assets. It has expanded its franchise in the growing, high-margin retail and SME segments. Dogus Group, a leading Turkish conglomerate, holds a 24.2% stake in the bank and Banco Bilbao Vizcaya Argentaria (BBVA; 'BBB+'/Negative) controls 25.01%. These shareholders, working in a strategic partnership and equally represented on Garanti's board, are long-term investors. The remaining shares are broadly held. Akbank is the third largest private bank with a 12% share in assets. It has an established franchise in corporate and retail banking and is looking to increase penetration in the high growth SME segment. Sabanci Holding, affiliated institutions and individuals, a leading Turkish conglomerate, is the longstanding strategic shareholder of the bank, with a 49% stake. Yapi Kredi is the fourth largest private bank in Turkey, with a 9% market share in assets. The bank's core activity and major contributor to revenues is retail banking. An 81% stake in the bank is held by Koc Financial Services, which is a 50-50 joint venture between UniCredit Bank Austria AG ('A+'/Stable; a subsidiary of UC) and Koc Holding (unrated, the largest conglomerate in Turkey by turnover). Although both strategic shareholders have proven supportive of YKB, Fitch bases the bank's support driven ratings on those of UC. Fitch equalises the ratings of Is Yatirim Menkul Degerler A.S. (an investment banking arm of Isbank) and Is Finansal Kiralama A.S., Garanti Finansal Kiralama A.S. and Ak Finansal Kiralama A.S. (leasing subsidiarieas of Isbank, Garanti and Akbank) with those of their parent institutions. The equalisation of the ratings reflects the subsidiaries' high level of integration with their parents; the fact that they are providing some of the groups' core products and services to target client groups; the subsidiaries' small size; their common branding with the parent institutions; and significant levels of parent funding to varying degrees. The ratings of these companies are highly likely to move in line with those of the parent banks in the future. The 'BB+' Long-term IDR of Turkiye Sinai Kalkinma Bankasi A.S. (TSKB) is driven by potential support from its 50% shareholder, Isbank. The rating is one notch lower than that of Isbank due to the high level of minority ownership, the moderate degree of integration with the parent, TSKB's niche franchise in development lending and the lack of common branding. Fitch also views sovereign support for TSKB as probable given the bank's policy role and the fact that a large majority (93%) of its non-equity funding is already guaranteed by the Turkish sovereign. The ratings actions are as follows: Isbank Long-term foreign currency IDR: affirmed at 'BBB-'; Outlook Stable Long-term local currency IDR: affirm
ed at 'BBB-'; Outlook Stable Short-term foreign currency IDR: affirmed at 'F3' Short-term local currency IDR: affirmed at 'F3' National Long-term rating: affirmed at 'AAA(tur)'; Stable Outlook Viability Rating: affirmed at 'bbb-' Support Rating: affirmed at '3' Support Rating Floor: affirmed at 'BB' Senior unsecured debt: affirmed at 'BBB-' Garanti Long-term foreign currency IDR: affirmed at 'BBB-'; Outlook Stable Long-term local currency IDR: affirmed at 'BBB-'; Outlook Stable Short-term foreign currency IDR: affirmed at 'F3' Short-term local currency IDR: affirmed at 'F3' National Long-term rating: affirmed at 'AAA(tur)'; Stable Outlook Viability Rating: affirmed at 'bbb-' Support Rating: affirmed at '3' Support Rating Floor: affirmed at 'BB' Senior unsecured debt: affirmed at 'BBB-' Akbank Long-term foreign currency IDR: affirmed at 'BBB-'; Outlook Stable Long-term local currency IDR: affirmed at 'BBB-'; Outlook Stable Short-term foreign currency IDR: affirmed at 'F3' Short-term local currency IDR: affirmed at 'F3' National Long-term rating: affirmed at 'AAA(tur)'; Stable Outlook Viability Rating: affirmed at 'bbb-' Support Rating: affirmed at '3' Support Rating Floor: affirmed at 'BB' Senior unsecured debt: affirmed at 'BBB-' Yapi Kredi Long-term foreign currency IDR: affirmed at 'BBB-'; Outlook Stable Long-term local currency IDR: affirmed at 'BBB'; Outlook Negative Short-term foreign currency IDR: affirmed at 'F3' Short-term local currency IDR: affirmed at 'F3' National Long-term rating: affirmed at 'AAA(tur)'; Outlook Stable Viability Rating: affirmed at 'bbb-' Support Rating: affirmed at '2' Senior unsecured debt: affirmed at 'BBB-' TSKB Long-term foreign and local currency IDR: affirmed at 'BB+'; Outlook Stable Short-term foreign currency and local currency IDR: affirmed at 'B' National Long-term rating: affirmed at 'AA+(tur)' Outlook Stable Support Rating: affirmed at '3' Is Yatirim Menkul Degerler A.S. National Long-term rating: affirmed at 'AAA(tur)' Outlook Stable Is Finansal Kiralama A.S. Long-term foreign and local currency IDR: affirmed at 'BBB-'; Outlook Stable Short-term foreign currency and local currency IDR: affirmed at 'F3' National Long-term rating: affirmed at 'AAA(tur)'; Outlook Stable Support Rating: affirmed at '2' Garanti Finansal Kiralama A.S. Long-term foreign and local currency IDR: affirmed at 'BBB-'; Outlook Stable Short-term foreign currency and local currency IDR: affirmed at 'F3' National Long-term rating: affirmed at 'AAA(tur)'; Outlook Stable Support Rating: affirmed at '2' Ak Finansal Kiralama A.S. Long-term foreign and local currency IDR: affirmed at 'BBB-'; Outlook Stable Short-term foreign currency and local currency IDR: affirmed at 'F3' National Long-term rating: affirmed at 'AAA(tur)'; Outlook Stable Support Rating: affirmed at '2' Contact: Primary Analyst (Garanti and TSKB) Janine Dow Senior Director +33 (0)1 4429 9138 Fitch France SAS 60 Rue de Monceau Paris 75008 Primary Analyst (Isbank, Akbank and Yapi Kredi) Banu Cartmell Director +44 203 530 1109 Fitch Ratings Limited 30 North Colonnade London E14 5GN Primary Analyst (Is Yatirim Menkul Degerler A.S.) Turda Ozmen Director +90 212 284 7882 Fitch Turkey Finansal Derecelendirme Hizmetleri A.S. Is Kuleleri, Kule 2, Kat 4 Levent 34330 Istanbul Primary Analyst (Is Finansal Kiralama A.S., Ak Finansal Kiralama A.S. and Garanti Finansal Kiralama A.S.) Zubaida El-Muttardi Analyst +44 203 5301192 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst (Garanti, Yapi Kredi, Garanti Finansal Kiralama A.S.) Levent Topcu Director +90 212 284 7829 Secondary Analyst (Isbank, Akbank, TSKB, Is Finansal Kiralama A.S. and Ak Finansal Kiralama A.S.) Turda Ozmen Director +90 212 284 7882 Secondary Analyst (Is Yatirim Menkul Degerler A.S.) Zubaida El-Muttardi Analyst +44 203 5301192 Committee Chairperson James Watson Managing Director + 7 495 956 9901 Media Relations: Michelle James, London, Tel: +44 0203 530 1574, Email: Michelle.James@fitchratings.com. Additional information is available atwww.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable criteria, 'Global Financial Institutions Rating Criteria' dated August 2011, 'National Ratings Criteria' dated January 2011, 'Rating Financial Institutions Above the Local Currency Sovereign Rating' dated December 2011 and 'Rating Foreign Banking Subsidiaries Higher than Parent Banks and Parent Bank Holding Companies' dated June 2011 available atwww.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria National Ratings Criteria Rating Financial Institutions Above the Local Currency Sovereign Rating Rating Foreign Banking Subsidiaries Higher Than Parent Banks or Bank Holding Companies (New York Ratings Team) ((e-mail: pam.niimi@reuters.com; Reuters Messaging: pam.niimi.reuters.com@reuters.net; Tel:1-646-223-6330;))
