GARANTI FAKTORING Fitch Ratings has affirmed five Turkish subsidiaries of large locally owned private banks and two Turkish subsidiaries of a large foreign-owned bank at their Long-Term Foreign-Currency Issuer Default Ratings (LTFC IDRs) of 'B-'.
The Outlooks on all LTFC IDRs are Negative, mirroring those on the respective parents. A full list of rating actions is detailed below.
The subsidiaries are four leasing companies (Ak Finansal Kiralama A.S., Garanti Finansal Kiralama A.S.,
Key Rating Drivers
Support-Driven Ratings: The ratings of Ak Finansal Kiralama A.S., Garanti Finansal Kiralama A.S.,
Highly Integrated Subsidiaries: All seven subsidiaries share the same branding as their parents, are highly integrated into their respective parents in terms of risk policies, and draw most of their board, senior management and underwriting practices from their parent banks. The subsidiaries benefit from the franchises of their parent banks and mostly share the same customer base, with a high share of referrals from their respective groups.
High Support Propensity: Cost of support would be limited as the subsidiaries are small compared with their parents and total assets usually do not exceed 3% of group assets. This, together with other support factors listed above, means Fitch believes the parents' propensity support to the subsidiaries remains very high. However, the ability to support is limited by the respective parents' creditworthiness as reflected in their respective ratings.
Moderate Leasing Sector Growth: High inflation, lower interest rates and slower lira depreciation in 2022 supported demand for leasing (42% nominally in 2022; 14% when FX adjusted). We believe such growth to be unsustainable and expect a moderate contraction on FX-adjusted basis in 2023.
Tighter bank regulation has reduced credit supply, particularly of long-term loans. These trends amplify the sector's already large maturity mismatch and interest rate risk. There is growing pressure on lessors to shorten their average receivable maturities, which would weigh on leasing affordability and demand.
High Factoring Sector Growth: Receivables growth (122% nominally in 2022) will remain supported by the regulatory tightening of banking credit, which makes factoring more attractive for corporates. However, factoring companies face uncertainties around the
The short-dated, local-currency balance sheets of Turkish factoring companies mitigate pressure on interest-rate volatility and refinancing risk as factoring companies can quickly reprice assets and adjust underwriting. Fitch expects this factor to continue supporting the creditworthiness of Turkish factoring companies in 2023.
National Ratings Affirmed: National Ratings and their Outlooks are equalized with their respective parent's National Ratings. The Stable Outlook on the foreign-owned issuers' National Ratings reflects our view that their creditworthiness in local currency relative to other Turkish issuers' will remain unchanged. The Negative Outlook on the domestically owned issuers' National Ratings reflects that on the Long-Term Local-Currency IDRs.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The subsidiaries' Long-Term IDRs are sensitive to a downgrade of their parents' Long-Term IDRs or further deterioration in the operating environment, which for example could be triggered by a sovereign downgrade.
A downgrade in the parents' National Ratings would also be likely to be mirrored in the subsidiaries' ratings.
The ratings could be notched down from their respective parents on material deterioration in the parents' propensity or ability to support or if the subsidiaries become materially larger relative to the respective banks' ability to provide support.
The ratings could be notched down from their respective parents if the subsidiaries' strategic importance is materially reduced through, for example, a substantial reduction in business referrals, reduced operational and management integration or ownership, or a prolonged period of underperformance.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of the subsidiaries' Long-Term IDRs is unlikely in the short term, given the Negative Outlooks. However, an upgrade of the respective parent's ratings would be reflected in the subsidiary's ratings.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond 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 '
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.
Public Ratings with Credit Linkage to other ratings
The ratings are equalised with the respective parent banks.
ESG Considerations
ESG Relevance Score for Management Strategy has been revised to '4' from '3' for all seven subsidiaries, in line with the parents' score. The scoring reflects increased regulatory intervention in the Turkish banking sector, which hinders the operational execution of the parent bank's management strategy, constrains management's ability to determine strategy and price risk, and creates an additional operational burden for the respective parent banks. The alignment reflects Fitch's view of high integration.
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. 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. For more information on Fitch's ESG Relevance scores, visit www.fitchratings.com/esg
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