Fitch rates Turkiye Finans 'BBB-', stable outlook

Fitch Ratings has assigned Turkey-based Turkiye Finans Katilim Bankasi A S (Turkiye Finans) a Long-term foreign currency Issuer Default Rating (IDR) of 'BBB-' and a Viability Rating of 'bb-'.

Turkiye Finans IDRs, Support and National Long-Term Ratings reflect potential support from its majority shareholder, Saudi Arabia's National Commercial Bank (NCB, 'A+'/Stable, Viability Rating 'a'). The Long-term foreign currency IDR is constrained by Turkey's 'BBB-' Country Ceiling, and the 'BBB' Long-term local currency IDR is capped two notches above Turkey's sovereign rating.

The Viability Rating reflects Turkiye Finans' currently good asset quality, stable and diversified funding and good profitability. The bank's relatively small size, rapid recent and planned growth and potential funding diversification challenges as the bank expands are credit negatives.

Operating ROE has been consistently good at around 18 per cent-20 per cent and is a notable strength in a competitive environment. The bank's net financing margin has been decreasing in 2011, in line with the rest of the market and peers, which partly limits core revenues. However, the margin was still sound at 5.5 per cent in 9M11. Asset quality has been robust, with the cost of risk the lowest in its peer group at 0.4 per cent in 9M11. Non-performing loans (NPLs) were a reasonable 2.3 per cent at end-9M11, and reserve coverage was well above 100 per cent.

The bank is mainly funded by well-diversified customer deposits. Remaining funding is raised from bilateral borrowings and murabaha syndications. Funding from the parent and related institutions, in the form of deposits and bilateral borrowings, was low and accounted for only 6 per cent of non-equity funding at end-9M11. Turkiye Finans's liquidity is currently comfortable, with liquid assets covering 26 per cent of deposits at end-9M11. The bank ultimately relies on its core deposit base, which has been stable to date, as well as on the liquidity support it could expect to receive from its parent. The Fitch core capital ratio of 14.9 per cent at end-9M11 was the highest in the peer group.

Turkiye Finans engages in participation banking which is similar to Islamic banking under interest-free principles. It is a small bank, with a 1.1 per cent market share in consolidated assets and 1.3 per cent in deposits in the Turkish banking system at end-H111.

The rating actions are as follows:

Turkiye Finans

LT FC IDR: assigned 'BBB-'; Outlook Stable

LT LC IDR: assigned 'BBB'; Outlook Stable

ST FC IDR: assigned 'F3'

ST LC IDR: assigned 'F3'

National Long-term rating: assigned 'AAA(tur)'; Outlook Stable

Viability Rating: assigned 'bb-'

Support Rating: assigned '2'