Fitch Ratings has assigned Akbank T.A.S.'s (Akbank, B/Positive) issue of Basel III-compliant additional Tier 1 (AT1) notes, a final long-term rating of 'CCC' and placed it on Rating Watch Positive (RWP).

The assignment of the final rating follows the receipt of final documents conforming to the information that Fitch has already received.

Key Rating Drivers

The AT1 notes are rated three notches below Akbank's Viability rating (VR) of 'b', which is on RWP. The notching comprises two notches for loss severity given the notes' deep subordination, and one notch for incremental non-performance risk given their full discretionary, non-cumulative coupons.

We have used the bank's VR as anchor rating as we deem it the most appropriate measure of non-performance risk. In accordance with the Bank Rating Criteria, Fitch has applied three notches from Akbank's VR, instead of the baseline four notches, due to rating compression, as Akbank's VR is below the 'BB-' threshold.

The notes are perpetual, deeply subordinated, fixed-rate resettable AT1 debt securities, with fully discretionary, noncumulative coupons and have a call option after five years. The notes are subject to full or partial principal write-down if Akbank's common equity Tier 1 (CET1) on a bank-only or group- basis ratio falls below 5.125%.

In addition, the notes are subject to permanent partial or full write-down, on the occurrence of a non-viability event (NVE). A NVE is when a bank incurs a loss (on a consolidated or non-consolidated basis) and the bank becomes, or it is probable that the bank will become, non-viable as determined by the local regulator, the Banking and Regulatory Supervision Authority (BRSA). The bank will be deemed non-viable should it reach the point at which the BRSA determines its operating license is to be revoked and the bank liquidated, or the rights of the bank's shareholders (except to dividends), and the management and supervision of the bank, are transferred to the Savings Deposit Insurance Fund (SDIF) on the condition that losses are deducted from the capital of existing shareholders.

Akbank's Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) is driven by its VR and is one notch below Turkiye's rating.

The notes are Akbank's first AT1 issue. Akbank has maintained significant buffers relative to its regulatory capital requirements. At end-2023, Akbank's 17.9% consolidated CET1 ratio (including forbearance), which is the same as it Tier 1 capital ratio, and its 21% consolidated total capital adequacy ratio (including forbearance), were significantly above their 8.5% CET1 and 12% total capital regulatory requirements, respectively, including a capital conservation buffer of 2.5% and a domestic systemically important bank buffer of 1.5%.

Rating Sensitivities

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

The rating of the notes is primarily sensitive to changes to Akbank's VR.

The AT1 rating is also sensitive to change in Fitch's assessment of the notes' non-performance relative to the risk captured in the VR. This may result, for example, from a significant decline in capital buffers relative to regulatory requirements.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

The rating of the notes is sensitive to an upgrade of Akbank's VR.

Date of Relevant Committee

12 March 2024

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

The ESG Relevance Score for Management Strategy of '4' reflects an increased regulatory burden on all Turkish banks. Management ability across the sector to determine their own strategy and price risk is constrained by increased regulatory interventions and also by the operational challenges of implementing regulations at the bank level. This has a moderately negative impact on banks' credit profiles and is relevant to banks' rating in combination with other factors.

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

RATING ACTIONS

Entity / Debt

Rating

AKBANK T.A.S.

subordinated

LT

CCC

New Rating

Page

of 1

VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

(C) 2024 Electronic News Publishing, source ENP Newswire