Fitch Ratings has assigned an Individual rating of D to Turkiye Halk Bankasi and affirmed its Long-term foreign and local currency ratings at B. The Outlook is Stable, stated a press release.
At the same time the agency has affirmed Halkbank's Short-term foreign currency rating at B, Support rating at 4, and National rating at BBB+. The outlook on the National rating is Stable.
The ratings reflect a strong franchise, improved capitalization and increased efficiency. These factors are counterbalanced by a difficult operating environment, heavy dependence on securities revenue and the challenges management will face in building up commercial activities in a competitive environment.
In 2001 and 2002 Halkbank underwent substantial organizational and financial restructuring to prepare it for eventual privatization; accumulated duty losses were swapped into floating-rate government securities, short-term liabilities were eliminated and the bank was recapitalized. Equity continued to increase in the first half of 2003, to 13 percent of assets, primarily through retained earnings, and free capital was comfortable at 9.88 percent of assets.
Though the regulatory capital is currently strong it will decline as the bank implements the planned growth in its loan book. Efficiency improved significantly as a result of branch and staff rationalization, and tight cost controls and improved IT infrastructure are also expected to enhance future efficiency.
It will still be challenging for Halkbank to compete effectively with the major private sector banks and build up sustainable lending businesses, says Fitch. Since government securities represented 79 percent of assets at end-1H03, the bank is heavily reliant on income from that portfolio in its operating revenue.
Although the risk management systems have improved and new techniques started to be implemented designed to monitor credit and market risks, the bank's ability to extend new loans without incurring problems is yet to be tested in the prevalent competitive environment.
At end-1H03, gross loans accounted for only 16 percent of assets, NPL/gross loans ratio was a high 47 percent, and net NPLs after reserves equated to only one percent of equity. As Halkbank begins to transform itself from a state-owned bank into a private bank, Fitch Ratings has concerns about the bank's future asset quality since the bank does not have a track record in lending successfully.
State-owned Halkbank became operational in 1938, initially supporting artisans, tradesmen and SMEs in offering subsidized loans. Turkey's sixth largest bank in terms of assets, it has 542 branches across the country and provides a wide range of banking services. At end-third quarter 2003, Halkbank had captured eight percent of local system assets and ranked sixth nationally and the bank also held nine percent and three percent of sector deposits and loans. — (menareport.com)
© 2004 Mena Report (www.menareport.com)
