Fitch Ratings has upgraded Turkiye Is Bankasi (Isbank)’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-, respectively.
The Outlook for the bank’s 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 Isbank's improved profitability, reduced non-performing loans and solid funding structure. This is offset by a high overhead cost base, low free capital due to a high proportion of permanent assets and weak reserve coverage.
After sustaining a loss in 2001 due to higher provisions and foreign exchange losses, Isbank's profitability measures rebounded in 2002 due to sound net interest margins resulting from low funding costs, higher fee income, improved insurance company operations, and lower provisions. Operating profits also benefited from reversal of previously-established provisions.
During the first half of 2003, earnings continued to be strong as fee income became a larger percentage of profits and higher-yielding consumer loans continued to increase. Because of its significant branch structure, Isbank has a high cost structure and management has initiated plans to reduce overall operating expenses through further use of technology.
Although decreasing by 36 percent last year, consolidated non-accrual loans remained significant at 13.93 percent at end-2002. This ratio was roughly unchanged at 30 June 2003. Reserve coverage was enhanced to 58 percent at end-2002 from 41 percent in the prior year but remains weak in light of the volatile operating environment.
Isbank's regulatory capital ratio was 30.14 percent at end-June 2003, however, its free capital was slightly negative. Through sales of participations and enhanced profitability, free capital was modestly positive in the third quarter of 2003.
In coordination with the Isbank Group, the bank initiated a plan in May 2002 to divest non-core participations and fixed assets not used for bank operation to enhance free capital and profitability. This remains the critical weakness of the bank.
Isbank is the largest private commercial bank in Turkey based on total assets, deposits, loans and equity. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
