Fitch upgrades Turkiye Garanti Bankasi's Individual rating to D

Published September 28th, 2003 - 02:00 GMT

Fitch Ratings has upgraded Turkiye Garanti Bankasi's Individual rating to D from D/E. At the same time, the agency has affirmed its Long-term foreign and local currency ratings at B-, Support at 5 and National rating at A-. The Outlook for the Long-term foreign and local currency ratings is Positive, while the Outlook for the National rating is Stable.  


The upgrade of the Individual rating reflects Garanti's improved asset quality, better funding structure and diversified business mix. It also reflects the bank's improving profitability as seen in the increasing stability of its income sources in the form of increased net fee and commission income. However, the low level of reserve coverage and the lack of free capital is still a concern.  


Fitch believes as the local economy improves further, Garanti is well positioned to be one of the main beneficiaries as one of the leading players in the Turkish banking industry.  


Last year was a transition year for Garanti following the 2001 financial crisis and subsequent recapitalization of some Turkish banks. However, Garanti has gained new business from the 20 banks that were placed under administration by the Banking Regulatory and Supervisory Agency (BRSA) in the last three to four years.  


After reporting a small net loss as of end-2002, on an inflation-adjusted basis, Garanti reported a net income of TL 8.2 trillion at the end of the first half of 2003. This was mainly due to a sizable increase in adjusted net interest income as Garanti reduced expensive inter-bank funding and increased net fee and commission and trading income.  


The bank's income sources also became more stable as the share of net fee and commission income increased to 26.1 percent of total operating income for the same period.  

Garanti's asset quality although still not sound, improved, with non-performing loans (NPLs) reduced to 4.5 percent of total gross loans at the end of first half 2003. Reserve coverage was still low at 57.3 percent. Fitch has also expressed concern about the bank's levels of equity.  


Garanti's consolidated capital ratio, although ahead of the minimum requirement at 13.8 percent at end of first half 2003, its fixed assets, participations and unreserved NPLs exceeded shareholders' equity, leaving it with although improved, still negative free capital equating to 1.2 percent for total assets.  


The bank also had deferred tax asset and intangibles impinging capital. Garanti was Turkey's third ranked privately-owned commercial bank by assets at end-2002. Dogus Group, which has interests in automotive, food, retail, construction, tourism, food and media as well as finance, directly and indirectly holds 68.49 percent of its share capital.  


Garanti's focus is corporate, commercial and retail banking, with the bank looking to increase its share in SME and retail business in 2003. It is also a major player in the money markets. It has a wide domestic branch network with 337 domestic branches and several overseas branches, representative offices and subsidiaries.  


Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. National ratings are designed for use mainly by local investors in local markets. Specific letter grades are not therefore internationally comparable. — ( 



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