P.A. Turkey

Fitch affirms 6 Large Turkish banks at ‘B+’; downgrades Halk to ‘B’

Fitch Ratings has taken multiple rating actions on seven Turkish banks. It has revised the Outlook on the Long-Term Foreign-Currency (LTFC) Issuer Default Ratings (IDRs) of Turkiye Garanti Bankasi A.S. (Garanti BBVA), T.C. Ziraat Bankasi (Ziraat) and Turkiye Vakiflar Bankasi (Vakifbank) to Negative from Stable. It has also downgraded Turkiye Halk Bankasi’s (Halk) LTFC IDR to ‘B’ from ‘B+’, which remains on Rating Watch Negative (RWN).

The other three banks Akbank T.A.S., Turkiye Is Bankasi (Isbank), Yapi ve Kredi Bankasi (YKB), have been affirmed, alongside Garanti BBVA, Ziraat and Vakifbank.

The downgrade of Halk and the Negative Outlooks on Ziraat and Vakifbank reflect the sovereign’s weaker foreign-currency (FC) reserves position, and therefore reduced ability to support the banks in FC in case of need. This has driven the downward revision of the three state-owned banks’ Support Rating Floors (SRFs) to ‘B’ from ‘B+’, as a result of which their LTFC IDRs are now driven by their Viability Ratings (VRs) of ‘b’/RWN for Halk and ‘b+’ for Ziraat and Vakifbank.

The Negative Outlook on Garanti BBVA reflects Fitch’s view that the weakening of Turkey’s external finances is increasing the risk of government intervention in the banking sector, which could impede the ability of all banks to service FC obligations. Garanti BBVA’s ratings are underpinned by potential shareholder support, but capped at the ‘B+’ level due to our assessment of intervention risk.

The affirmation of the VRs of Akbank, Isbank, YKB, Garanti BBVA, Ziraat and Vakif at ‘b+’ reflects their generally still significant capital and FC liquidity buffers. Halk’s lower VR of ‘b’ mainly takes into account the bank’s weaker loss absorption capacity. The VRs of Ziraat, Vakif and Halk also factor in the equity injections which the Turkish authorities plan to complete imminently.

At the same time, risks to all seven banks’ standalone credit profiles have increased as a result of the economic downturn and financial-market volatility, which heighten pressure on lenders’ asset quality, capitalisation, performance, funding and liquidity. This drives the Negative Outlooks on the LTFC IDRs of Akbank, Isbank, YKB, Ziraat and Vakif, and these ratings could be downgraded if the recovery of the Turkish economy is slower- and the impact of the pandemic on these banks more severe- than-expected. Pressure on state banks’ ratings is greatest given their recent more rapid growth and weaker (at Halk and Vakifbank) loss absorption capacity, notwithstanding their pending capital increases.

The RWN on Halk’s ratings continues to reflect a material risk of the bank becoming subject to a fine or other punitive measures as a result of ongoing U.S. legal proceedings, and uncertainty surrounding the sufficiency and timeliness of support from the Turkish authorities in case of such measures. Fitch expects to resolve the RWN upon more clarity on the outcome of the U.S. investigations and the implications this may have on the bank. The RWN may be maintained longer than six months if the U.S. investigations are extended for a longer period of time.

The support-driven LT IDRs of Akbank AG (AAG) and Ziraat Katilim Bankasi (ZKB) have been affirmed, in line with their parents, Akbank and Ziraat.