May 22 (SeeNews) - Fitch Ratings said on Friday it has affirmed the support-driven 'B+' long-term foreign-currency issuer default ratings (LTFC IDRs), with negative outlooks, on 12 non-bank financial institutions (NBFI) that are subsidiaries of Turkish banks.
Fitch has affirmed the rating of leasing companies Alternatif Finansal Kiralama AS, Ak Finansal Kiralama A.S., Deniz Finansal Kiralama A.S., Garanti Finansal Kiralama A.S., Is Finansal Kiralama A.S., QNB Finans Finansal Kiralama A.S. and Yapi Kredi Finansal Kiralama A.O., it said in a statement.
It has also affirmed the rating of factoring companies Garanti Faktoring A.S., QNB Finans Fatkoring A.S., Yapi Kredi Faktoring A.S., investing company Yapi Kredi Yatirim Menkul Degerler A.S. and consumer finance company - TEB Finansman AS.
Fitch also said in the statement:
"KEY RATING DRIVERS
The ratings (except that one TEB Finansman) are equalised with those of their parents, reflecting Fitch's view that they are core and highly integrated subsidiaries. The rating action follows Fitch's affirmation of the IDRs of large private Turkish banks [...] and foreign-owned Turkish banks [...]
The Negative Outlook on the LTFC IDRs of the subsidiaries of foreign-owned banks (Alternatif Leasing, Deniz Finansal Kiralama , Garanti Finansal Kiralama, QNB Leasing , Garanti Faktoring and QNB Finans Fatkoring) and of TEB Finansman reflects Fitch's view that the weakening of Turkey's external finances increases the risk of government intervention in the banking sector, which could impede the companies' ability to service foreign-currency obligations, as for their parent banks. The ratings are underpinned by potential shareholder support, but capped at 'B+' due to our assessment of intervention risk.
The Negative Outlook on the LTFC IDRs of subsidiaries of local private banks (Ak Finansal Kiralama, Is Finansal Kiralama, Yapi Kredi Finansal Kiralama, Yapi Kredi Faktoring and Yapi Kredi Yatirim) reflects continuing pressure on the credit profiles of their banking groups due to the economic downturn and financial-market volatility.
The ratings of the NBFI subsidiaries reflect their role in the group, enhancing the parents' franchises, strategic objectives and revenue growth prospects and that they are majority owned by their parents (or parent group companies). The subsidiaries offer core products and services (including leasing, factoring and investment banking/brokerage) in the domestic Turkish market.
All NBFI subsidiaries (except TEB Finansman) share the same branding as their parents, are highly integrated into their banking groups in terms of risk and IT systems, and draw most of their senior management and underwriting practices from parent banks. The subsidiaries benefit from the strong franchises of their parent groups and mostly share the same customer base with a high share of referrals from their respective groups. In addition, the cost of support would be low as the subsidiaries are small relative to their parents, with total assets not exceeding 5% of group assets.
In our view, the propensity of support for TEB Finansman and its sister bank, Turk Ekonomi Bankasi A.S. (TEB Bank; B+/Negative), is closely aligned. This is based on a common brand association and significant reputational damage in the event of a subsidiary default, notwithstanding differences in their respective legal structures.
These factors lead Fitch to believe support from parent banks to the subsidiaries remains highly probable.
RATING SENSITIVITIES
The subsidiaries' ratings are sensitive to changes in: the parents' ratings (except for TEB Finansman); and Fitch's view of the ability and willingness of the parents to provide support in case of need.
Factors that could, individually or collectively, lead to negative rating action/downgrade or widening of notching with the parent:
The Outlooks on the companies' LTFC IDRs are Negative, mirroring those on the parent banks (except for TEB Finansman) and therefore the ratings of subsidiaries of private banks are sensitive to negative developments regarding operating environment challenges, and subsidiaries of foreign-owned banks to increasing risk of government intervention in the banking sector.
The ratings could be notched down from their respective parents if: the subsidiaries become materially larger relative to the respective parents' ability to provide support; or the subsidiaries' strategic importance is materially reduced through, for example, a substantial reduction in business referrals, levels of operational and management integration, a reduced level of ownership or a prolonged period of underperformance. However, these considerations do not form part of Fitch's base case given the subsidiaries' small sizes relative to their parents and key roles within their respective groups.
Weaker support for TEB Finansman from BNPP, for example, as a result of divesture or diminishing of importance of the Turkish market, could be negative for its ratings, although this is not expected by Fitch.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The Outlooks on all companies' LTFC IDRs could be revised to Stable in line with their parent banks if economic conditions stabilise and Fitch believes the risk of a further marked deterioration in Turkey's external finances, and therefore of intervention in the banking system, has abated.
Upgrades of the companies' LTFC IDRs are unlikely in the short term given the Negative Outlooks.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. [...] ."