Moody's confirms Halkbank's ratings, changes outlook to negative
Moody's Investors Service (Moody's) has confirmed Turkiye Halk Bankasi A.S. (Halkbank's) long-term foreign-currency senior unsecured debt and long-term local-currency deposit ratings at Ba1 and long-term foreign currency deposit rating at Ba2.
The outlook was changed to negative.
Halkbank's ba2 stand-alone baseline credit assessment (BCA) was also confirmed. This rating action concludes the review initiated in April 2017.
The confirmation of the Halkbank's ratings took into account the bank's strong performance in Q1 2017, in line with its Turkish peers, and the limited impact on the bank to date from the on-going investigation related to alleged transactions with prohibited parties, which led to the arrest of the bank's deputy CEO by the US authorities on 29 March.
Moody's noted that Halkbank's performance has improved since the beginning of the year as evidenced by its published Q1 2017 financial results. The bank's net profit at TL1.5 billion for Q1 2017 was up 150 per cent quarter-on-quarter. As a result, and despite the three per cent growth in its risk-weighted assets, the bank's capital adequacy has also improved.
Halkbank's consolidated capital adequacy ratio (CAR) was 13 per cent and its Tier 1 ratio at 12 per cent at the end of Q1 2017, improving from 12.5 per cent and 11.5 per cent, respectively, at the end of 2016. The bank relies on a higher-quality Tier 1 capital as it does not have any outstanding subordinated debt unlike some of its peers. However, the bank's total capital ratio is lower than similarly rated Turkish peers.
The bank's NPL ratio remained flat at 3.2 per cent at the end of Q1 2017, in line with the market average. Halkbank's asset quality ratio is comparatively conservative, as the bank does not engage in selling NPLs to external buyers, like some of its privately-owned Turkish peers. In addition, Halkbank's specific NPL coverage ratio of 76 per cent at Q1 2017 is in line with the system average, which Moody's considers as adequate.
In Moody's view Halkbank is exposed to volatility in investor sentiment, given its high level of market funding, although at 112 per cent it has a lower loan-to-deposit ratio than the Turkish system average of above 120 per cent. This is also mitigated by conservative liquidity ratios of liquid assets to tangible banking assets of 28 per cent as of Q1 2017. However, access to wholesale markets and the cost of funding remain key factors that could affect the bank's stand-alone BCA.
Thus far, Moody's has not observed any material change in Halkbank's performance, or access to market funding, related to the on-going investigation by the US authorities that led to the arrest of the bank's deputy CEO. However, Moody's will continue to monitor the ongoing legal risk. Should the bank become directly involved in the case, or should indirect repercussions emerge, Moody's notes that there could be negative implications for the bank's ratings.
Moody's continues to assume a very high probability of government support for this majority government-owned bank, resulting in a one-notch uplift for the Ba1 long-term local-currency deposit rating, from the bank's ba2 stand-alone BCA.
The assigned negative outlook on the bank's long-term senior unsecured debt and deposit ratings is influenced by the negative outlook of the Turkish government rating, as well as the downside risk of the bank's stand-alone BCA in light of the expected economic slow-down. Additionally the emergence of any developments with respect to the bank from the on-going investigation could negatively impact the bank's ratings.
Given the negative pressures on the bank's stand-alone performance, an upgrade is unlikely in the short-term.
The stand-alone BCA could be adjusted downward if there is evidence of restricted market access and a failure to refinance existing obligations, if there are sizeable losses due to operational or legal issues, and/or if capitalisation declines materially below similarly rated peers.
Long-term deposit or debt ratings, which could incorporate an uplift from government support, might be affected by changes in the sovereign rating, Moody's views on the government's willingness to provide support, or changes to sovereign ceilings.