Standard & Poor (S&P)'s Ratings Services has raised its long-term counterparty credit ratings on Turkey-based TC Ziraat Bankasi (Ziraat) and Turkiye Is Bankasi to B+ from B.
At the same time, the long-term counterparty credit rating on Turkiye Garanti Bankasi was raised to B from B-, and the long- and short-term counterparty credit ratings on Garanti Finansal Kiralama (Garanti Leasing) were raised to B/B from B-/C. The outlooks on these four institutions are stable.
The various rating actions follow S&P's upgrade of its ratings on the Republic of Turkey, which reflected the significant progress that the government has made toward meeting the year-end 2003 financial targets under its IMF-supported program, and its commitment to continue implementing the program in 2004.
"The soundness of the Turkish banking sector is improving as a result of its restructuring and the developing macroeconomic situation in Turkey as evidenced by the strong economic growth and the rapid drop in interest rates," said S&P's credit analyst Emmanuel Volland.
If positive and sustainable economic developments continue, good opportunities for growth will be created for leading Turkish financial institutions. There is generally a low level of market penetration with respect to many retail-banking services at a time when the base of potential customers is growing rapidly.
At the same time, banks will operate in a radically different environment characterized by lower inflation and interest rates. Banks that have built a real customer franchise, sophisticated IT systems, and efficient distribution networks should prosper. However, notwithstanding significant progress, Turkish banks still face the challenge of improving their asset quality and weak capitalization, and diversifying revenues.
The profitability of the banks is still highly dependent on holding government instruments rather than the usual bank lending to the private sector. In addition, the banking system has a number of items pending on the reform agenda, including the long-awaited privatization of the state-owned banks.
"The stable outlook on the four institutions balances the improving economic and financial environment in Turkey with their still-fragile financial profiles," said Volland. If the positive economic trend continues, they will benefit from the lower cost of funds and an increase
in business opportunities. "Conversely, if the government abandons the discipline of its program, confidence could disappear rapidly and banks could come under downward pressure," he added. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
