Moody's Investors Service has downgraded the financial strength rating (FSR) of Yapi Ve Kredi Bankasi (YKB) to E from D- concluding the review that was initiated in July of this year, stated a press release.
In addition, the rating agency announced that it has placed on review YKB's Baa3/P3 local currency deposit ratings. The B3/NP foreign currency deposit ratings remain unchanged with a negative outlook in line with the country ratings ceiling for foreign currency deposits in Turkey.
The two-notch downgrade is prompted by a protracted delay in the resolution of YKB's poor asset quality problems stemming from related-party loans with the Cukurova Group, says Moody's. Additional provisioning for such loans, which may be required soon, would seriously compromise the bank's solvency.
The potential resolution of YKB's problems has been further complicated by the decision of a Turkish court to reverse the take-over of sister bank Pamukbank by Turkish banking regulators BDDK, says the rating agency. While Moody's continues to believe that in case of financial distress the bank's depositors will be supported by the Turkish financial authorities, the uncertainty regarding the fate of Pamukbank and its potential impact on YKB has raised concerns about the timeliness of such support. Such concerns have prompted Moody's to review the bank's investment-grade local currency deposit ratings.
According to Moody's, the bank's capacity for bottom-line profitability is limited if the related-party loans issue is not resolved. Losses made during the first nine months of this year have significantly eroded YKB's capital. The rating agency said that it believes that currently the bank has negative cash equity, which continues to worsen, and its economic capital is now consistent with that of E-rated banks.
Moody's notes that YKB's retail banking franchise continues to be strong, supported by a good Information technology (IT) infrastructure and a capable management team, which has succeeded under current difficult circumstances to defend this franchise. However, the bank's current poor financial situation weighs more heavily in the assessment of the FSR, neutralizing to a large extent its franchise value.
YKB is headquartered in Istanbul, Turkey and had total assets of $10.6 billion at year-end 2001. — (menareport.com)
© 2002 Mena Report (www.menareport.com)
