Fitch Ratings has assigned an Individual rating of D to Ziraat 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, Fitch has affirmed Ziraat'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 of Ziraat reflect its strong presence in the Turkish banking system, solid funding, comfortable 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, Ziraat 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 recapitalised. Ziraat's equity rose to 12.2 percent of assets at end-1H03, mainly owing to retained earnings, and free capital was comfortable at 9.74% of assets. Although 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 rationalisation, and tight cost controls and improved IT infrastructure are also expected to enhance future efficiency.
It will still be challenging for Ziraat to compete effectively with the major private sector banks and build up sustainable lending businesses. Since government securities represented 67 percent of total assets at end-first half 2003, the bank is heavily dependent on income from that portfolio in its operating revenue.
Although the risk management systems have improved and new techniques have started to be implemented 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. Gross loans accounted for only 14 percent of assets at end-1H03, NPLs were 10 percent of gross loans, and net NPLs after reserves equated to only one percent of equity.
As Ziraat begins to transform itself from being a state-owned bank into a private bank, Fitch has concerns about the bank's future asset quality since the bank does not have a track record in lending successfully.
Ziraat is a state-owned bank established in 1863 initially to support the agricultural industry. It is the largest bank in Turkey in terms of asset size and number of branches, has a strong franchise and provides a wide range of banking services. The bank's widespread presence enabled it to capture approximately 21 percent of the banking sector's total deposits and 19 percent of total assets at the end of third quarter 2003. — (menareport.com)
© 2004 Mena Report (www.menareport.com)
