Moody's Investors Service has today assigned a provisional (P)Baa3 long-term senior unsecured debt rating to the $1.5 billion global medium-term note (GMTN) program of Export Credit Bank of Turkey A.S. (Turk Exim). At the same time, Moody's affirmed Turk Exim's Baa3 foreign currency issuer and long-term senior unsecured debt ratings, with a negative outlook.
Moody's rating for the debt obligations of Turk Exim's GMTN programme is in line with its Baa3 long-term issuer rating.
Moody's assigned the rating in the context of Turk Exim issuing long term debt notes through its GMTN programme, up to a maximum aggregate of $1.5 billion. The notes will be unconditional, unsubordinated and unsecured obligations, and will rank pari passu with all of Turk Exim's other senior unsecured obligations.
As Moody's issues provisional ratings in advance of the final issuance under the programme, these ratings only represent Moody's preliminary credit opinion and do not immediately apply to any other individual notes issued under the programme. The ratings on individual notes issued under the programme will be subject to Moody's review of the terms and conditions set forth in the final base and supplemental offering circular and pricing supplements of the notes to be issued. A definitive rating may differ from a provisional rating if the terms and conditions of the issuance are materially different from those of the programme reviewed.
In addition, the affirmation of Turk Exim's Baa3 foreign currency issuer and long-term senior unsecured ratings, with a negative outlook, reflects the bank's standalone Baseline Credit Assessment (BCA) of ba1 (repositioned from baa3) and Moody's assumptions of very high dependence and support from the Turkish government (Turkey, Baa3 negative).
The bank's repositioned BCA of ba1 reflects its lower, albeit still strong, capitalisation and the increasing challenges in the Turkish operating environment for commercial banks, which represent the main asset-risk exposure for Turk Exim. As the Turkish lira depreciation has continued to affect the Turkish banking system, Turk Exim's Tier 1 capital ratio has declined to 19.6 per cent at end-June 2015 from 23.4 per cent at year-end 2014. This largely reflects the significant proportion of foreign-currency denominated loans, which stood at 83 per cent of the total loan portfolio at end-June 2015. At the same time, Moody's notes that commercial banks in Turkey are facing increasing financial challenges reflected by lower capitalisation, profitability and gradually weakening asset quality, which results to some extent in a higher risk profile of Turk Exim given that domestic commercial banks guarantee most of its export-credit business.
At the same time, the bank's BCA continues to reflect its: (1) policy mandate and stable position within the export-financing business with a market share of 35 per cent as of H1 2015; and (2) conservative risk profile evidenced by the non-performing loans ratio of 0.3 per cent as of H1 2015 and its lending policy that requires full indemnity by either commercial banks or the government covering for political risk.
Our assessment of a very high support probability from the Turkish government (in case of need) is based on: (1) Turk Exim's full ownership by the Turkish Treasury; (2) Turk Exim's policy mandate to support the Turkish economy by promoting export growth; (3) the government's track record of injecting funds into Turk Exim as well as implicit (and at times explicit) guarantees on the bank's funding; and (4) government presence at board level.
The negative outlook reflects the similar outlook on the Government of Turkey's rating.
Currently, there is no upward pressure on the ratings, as reflected by the negative outlook. An upgrade of the bond rating of the Turkish Government could result in upwards rating pressure on Turk Exim's ratings up to the level of the rating of the government.
Factors that could exert downwards rating pressure are: (1) weakening creditworthiness of the Turkish sovereign; and/or (2) a material weakening in the bank's financial fundamentals, in particular in asset quality, capitalisation and liquidity.
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