Rating Action Commentary
ֳ Publishes TEB's Basel III-Compliant AT1 Notes' 'CCC(EXP)' Rating
Wed 04 Sep, 2024 - 1:43 PM ET
ֳ - London - 04 Sep 2024: ֳ has published Turk Ekonomi Bankasi A.S.'s (TEB; B/Positive/b) planned additional Tier 1 (AT1) capital notes expected rating of 'CCC(EXP)'. The size of the issue is not yet determined but is expected to be in the range of USD200 million - USD300 million.
The final rating is subject to the receipt of the final documentation conforming to information already received by ֳ.
Key Rating Drivers
The planned AT1 notes are rated three notches below TEB's Viability rating (VR) of 'b'. The notching comprises two notches for loss severity given the notes' deep subordination, and one notch for incremental non-performance risk given their full discretionary, non-cumulative coupons.
We have used the bank's VR as anchor rating as we deem it the most appropriate measure of non-performance risk. In accordance with the Bank Rating Criteria, ֳ has applied three notches from TEB's VR, instead of the baseline four notches, due to rating compression, as TEB's VR is below the 'BB-' threshold.
The notes are Basel III-compliant, perpetual, deeply subordinated, fixed-rate resettable AT1 debt securities. They have fully discretionary, non-cumulative coupons and are subject to full or partial principal write-down if TEB's common equity Tier 1 (CET1) on a bank-only or group-basis ratio falls below 5.125%. They have a call option (subject to approval by the Banking Regulation and Supervision Agency (BRSA)) after five years and any interest payment date thereafter.
The notes are also subject to permanent partial or full write-down, on the occurrence of a non-viability event (NVE). An NVE is when a bank incurs a loss (on a consolidated or non-consolidated basis) and the bank becomes, or it is probable that the bank will become, non-viable as determined by the local regulator, the BRSA. The bank will be deemed non-viable should it reach the point at which the BRSA determines its operating license is to be revoked and the bank liquidated, or the rights of the bank's shareholders (except to dividends), and the management and supervision of the bank, are transferred to the Savings Deposit Insurance Fund on the condition that losses are deducted from the capital of existing shareholders.
TEB's consolidated regulatory CET1 and Tier 1 ratios (including regulatory forbearance of fixing of exchange rate and cancellation of M-t-M losses) were both at 9.3%, at end-1H24, above its regulatory minimum requirements of 7.0% and 8.5%, respectively, including a capital conservation buffer of 2.5%. ֳ estimates that potential AT1 issuance will increase the Tier-1 ratio by about 150bp to 230bp depending on the size.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
As the notes are notched down from TEB's VR, the rating is sensitive to a downgrade of the VR. This may result, for example, from a significant decline in capital buffers relative to regulatory requirements. The notes' rating is also sensitive to an unfavourable revision in ֳ's assessment of incremental non-performance risk.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
The notes' rating is sensitive to an upgrade of TEB's VR but the notching of the notes' rating could be widened to four should TEB's VR be upgraded to the 'bb-' threshold.
Date of Relevant Committee
13 August 2024
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
TEB's ratings are linked to BNPP's.
ESG CONSIDERATIONS
The ESG Relevance Score for Management Strategy of '4' reflects an increased regulatory burden on all Turkish banks. Management ability across the sector to determine their own strategy and price risk is constrained by increased regulatory interventions and also by the operational challenges of implementing regulations at the bank level. This has a moderately negative impact on the bank's credit profile and is relevant to the rating in combination with other factors.
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. ֳ's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on ֳ's ESG Relevance Scores, visit /topics/esg/products#esg-relevance-scores.
Additional information is available on
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure.
APPLICABLE CRITERIA
ADDITIONAL DISCLOSURES
ENDORSEMENT STATUS
| Turk Ekonomi Bankasi A.S. | UK Issued, EU Endorsed |