September 16 (SeeNews) - Moody's Investors Service said it downgraded the ratings of 13 Turkish banks after recently revising Turkey's sovereign bond rating to B2 from B1, with the negative outlook maintained.
The outlooks on the long-term deposit and debt ratings of all the Turkish banks rated by Moody's remain negative, in line with the negative outlook on the sovereign rating. The negative outlooks reflect the downside risks associated with a balance of payments crisis, which could lead to capital controls and restrictions on foreign currency outflows, the ratings agency said in a statement on Tuesday.
The 13 banks are: Akbank T.A.S., Alternatifbank A.S., Denizbank A.S., HSBC Bank A.S. (Turkey), QNB Finansbank A.S.,T.C. Ziraat Bankasi A.S., Turk Ekonomi Bankasi A.S., Turkiye Garanti Bankasi A.S., Turkiye Halk Bankasi A.S., Turkiye Is Bankasi A.S., Turkiye Vakiflar Bankasi T.A.O. and Yapi ve Kredi Bankasi A.S. and Export Credit Bank of Turkey A.S.
The ratings agency also said in the statement:
The rating action follows Moody's downgrade of the Government of Turkey's bond rating, which also resulted in the lowering of the ceilings for foreign currency deposits to Caa1 from B3, for foreign currency bonds to B2 from B1 and, for eight banks, a lower rating uplift from government support.
FOREIGN CURRENCY DEPOSIT RATINGS ARE CONSTRAINED BY THE FOREIGN CURRENCY DEPOSIT CEILING
In a related decision to the sovereign downgrade, Moody's lowered the long-term foreign currency deposit ceiling for Turkish banks to Caa1 from B3 on 11 September 2020. As a consequence, the long-term foreign currency deposit ratings of 12 Turkish banks are constrained at Caa1. These banks are: Akbank T.A.S. (Akbank), Alternatifbank A.S. (Alternatifbank), Denizbank A.S., HSBC Bank A.S. (Turkey), QNB Finansbank A.S. (QNB Finansbank),T.C. Ziraat Bankasi A.S. (Ziraat), Turk Ekonomi Bankasi A.S. (TEB), Turkiye Garanti Bankasi A.S. (Garanti BBVA), Turkiye Halk Bankasi A.S. (Halk Bank), Turkiye Is Bankasi A.S. (Isbank), Turkiye Vakiflar Bankasi T.A.O. (Vakifbank) and Yapi ve Kredi Bankasi A.S. (Yapi Kredi).
PROBABILITY OF GOVERNMENT SUPPORT IS UNCHANGED
Moody's has maintained its assumptions of government support unchanged for Turkish banks.
The long-term deposit and issuer ratings -- where applicable -- of eight banks benefit from uplift from government support, reflecting Moody's assumptions of very high or high probability of government support. These banks are Akbank, Export Credit Bank of Turkey A.S. (Turk Eximbank), Garanti BBVA, Halk Bank, Isbank, Vakifbank, Yapi Kredi, Ziraat.
The long-term CRR and CRA of Akbank, Garanti BBVA, Turk Eximbank, Vakifbank, Yapi Kredi and Ziraat now benefit from a one to two-notch uplift of government support, from two to three previously. This reflects an unchanged probability of government support and a narrower gap between the banks' BCA and Turkey's sovereign debt rating.
For the other banks, the rating agency continues to maintain a low probability of government support, which does not provide any rating uplift.
FOREIGN CURRENCY COUNTERPARTY RISK RATINGS (CRR) AND SENIOR UNSECURED RATING ARE IN SOME CASES CONSTRAINED BY THE FOREIGN CURRENCY BOND CEILING
Moody's lowered the long-term foreign currency bond ceiling for Turkish banks to B2 from B1 on 11 September 2020, in line with the sovereign downgrade. As a consequence, the long-term foreign currency CRR of Alternatifbank, QNB Finansbank and TEB and the senior unsecured rating of QNB Finansbank were downgraded and are constrained at B2.
VERY WEAK + MACRO PROFILE IS UNCHANGED
The BCAs and other ratings and assessments of Turkish banks are unaffected by this rating action because of the unchanged Macro Profile and Moody's affiliate support assumptions.
Moody's has maintained the Very Weak + Macro Profile it assigns to Turkish banks, reflecting the rating agency's unchanged view on the operating environment for banks. Despite a challenging economic environment and funding market conditions for Turkish banks, Moody's notes that Turkish banks' reliance on short term wholesale foreign funding has reduced moderately (USD44 billion at end-June 2020, from USD64 billion available at end-April 2019) while foreign currency liquidity has been maintained at broadly similar levels (USD90 billion at end-June 2020). As a result of this, Moody's reduced the negative adjustment it applies for Funding Conditions and maintained the Very Weak + Macro Profile. Moody's also notes that Turkish banks have continued to maintain access to the syndicated loans market throughout the coronavirus pandemic.
All long-term deposit, senior and issuer ratings have a negative outlook, in line with the negative outlook on the sovereign rating. The outlook reflects the downside risks associated with the authorities' inadequate reaction function, which makes Turkey more likely to suffer a balance of payments crisis, which might lead to capital controls and restrictions on foreign currency outflows.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade is unlikely, given the current negative outlook. The outlook could be changed to stable following a stabilisation of Turkey's sovereign outlook, an improvement of the operating environment, which would stabilise the banks' stock of problem loans and profitability, and a further structural reduction of the banks' reliance on foreign currency funding.
A downgrade could be driven by a downgrade of the sovereign rating, deterioration in Turkey's operating environment, a higher-than-expected deterioration of asset quality and profitability, or a material decline in capital ratios."