Standard & Poor's (S&P's) has revised to positive from stable its outlooks on Turkey-based TC Ziraat Bankasi and Turkiye Is Bankasi (Isbank). At the same time, S&P's affirmed its B+/B long- and short-term counterparty credit ratings on both banks.
"The rating actions reflect the improving operating environment for Turkish banks, as well as the positive trends in the banks' financial profiles and performance," said S&P's credit analyst Magar Kouyoumdjian. "Given Turkish banks' large holdings of government securities, they remain exposed to the creditworthiness of the Republic of Turkey," he added.
The ratings on Ziraat balance the still risky banking and economic environment in which the bank operates with its full ownership by the Republic of Turkey and its importance to the banking sector as the largest bank. In addition, the restructuring of Ziraat has been successful, and profitability, liquidity, and capitalization have improved significantly.
Ziraat's main challenges are to diversify its revenues, achieve better efficiency through automation, and increase loan leverage, however. The bank's large balance sheet is characterized by the dominance of government debt.
The ratings on Isbank reflect the bank's leading commercial position and adequate liquidity profile. The bank's asset quality and capitalization are recovering fast after being negatively affected by the 2001 crisis in Turkey.
With total unconsolidated assets--adjusted for inflation according to local accounting standards—of 31.1 quadrillion Turkish lira ($21.8 billion) at Dec. 31, 2003, Isbank operates the second-largest branch network in Turkey and maintains a leading position in retail and corporate banking.
The positive outlook on Ziraat and Isbank reflects that on the Republic of Turkey. "If the positive economic developments continue, the banks will benefit from the lower cost of funds and increasing lending opportunities," added Kouyoumdjian.
Conversely, if confidence deteriorates, the banks will have to operate in a more difficult and volatile financial environment with limited potential for lending and business diversification. Furthermore, progress in asset quality and profitability could become much more uncertain under such a scenario.
The banks' creditworthiness will therefore continue to depend on the economic environment and, in Ziraat's case, on the ability of the bank's management to make it competitive with private sector banks in Turkey. — (menareport.com)
© 2004 Mena Report (www.menareport.com)
