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���������ֳ�-London-28 February 2019: ���������ֳ� has affirmed the Long-Term Foreign-Currency Issuer Default Ratings (LTFC IDRs) of Denizbank A.S., ING Bank A.S. (INGBT), QNB Finansbank A.S. and Turk Ekonomi Bankasi A.S. (TEB), at 'BB-'. The Outlooks are Negative. We have also affirmed the banks' Viability Ratings (VRs) at 'b+'.

The support-driven LTFC IDRs of the banks' subsidiaries Deniz Finansal Kiralama A.S. (Deniz Leasing), Joint-Stock Company Denizbank Moscow (Denizbank Moscow), QNB Finans Faktoring A.S. (QNB Finans Faktoring) and QNB Finans Finansal Kiralama A.S. (QNB Finansleasing), which are equalised with those of their parents, have also been affirmed.

The downgrade of Denizbank Moscow's Long-Term Local-Currency (LC) IDR, to the level of its LTFC IDR, reflects ���������ֳ�'s view that the ability of Denizbank to provide support, whether in the local or foreign currency of the subsidiary, is reflected in the parent's Foreign-Currency IDR.

A full list of rating actions is at the end of this commentary.

KEY RATING DRIVERS
IDRS, NATIONAL RATINGS, SENIOR DEBT AND SUPPORT RATINGS OF ALL BANKS
The banks' IDRs, National and senior debt ratings (QNB Finansbank, TEB) are driven by potential shareholder support. This reflects ���������ֳ�'s view of the banks' strategic importance to their respective parents, their ownership, integration, roles within their respective groups and shared branding (QNB Finansbank, INGBT). The Negative Outlooks on the banks' IDRs reflect those on the Turkish sovereign.

INGBT is fully owned by ING Bank N.V. (AA-/Stable/a+). TEB is 55% owned, but fully controlled, by TEB Holding, a holding company in which BNP Paribas S.A. (A+/Stable/a+) has a 50% stake. BNP Paribas directly owns an additional 44.7% stake in TEB. QNB Finansbank and Denizbank are both 99.9% owned by their respective shareholders, Qatar National Bank (Q.P.S.C.) (QNB, A+/Stable/bbb+) and Sberbank of Russia (BBB-/Positive/bbb-).

Sberbank announced the potential sale of Denizbank to UAE-based Emirates NBD PJSC (A+/Stable/bb+) in May 2018, although the sale has yet to be finalised. ���������ֳ�'s base case is that Sberbank will continue to support Denizbank in case of need until the sale is finalised, given its ownership and integration.

The banks' LTFC IDRs and FC senior debt ratings are rated one notch below the Turkish sovereign LTFC IDR, reflecting our view that, in case of a marked deterioration in Turkey's external finances, the risk of government intervention in the banking sector would be higher than that of a sovereign default. The Negative Outlooks on the banks' IDRs reflect those on the Turkish sovereign. The LTLC IDRs of all four banks - which are notched once below the sovereign rating - also reflect potential intervention risk.

���������ֳ� continues to view the risk of capital controls being imposed in Turkey as remote given Turkey's high dependence on foreign capital (and ensuing strong incentive to retain market access) and the eventually orthodox policy response to recent market pressures. Nevertheless, in case of a marked deterioration in Turkey's external finances, some form of intervention in the banking system that may impede the banks' ability to service their FC obligations would become more likely, in ���������ֳ�'s view.


VRs
The VRs of the four banks reflect the concentration of their operations in the high-risk Turkish operating environment, which deteriorated significantly in 2018. This was shown by the lira depreciation, the sharp rise in local-currency interest rates (heightening pressure on the banks' margins, asset quality, capitalisation and liquidity) and weakening GDP growth. ���������ֳ� expects growth of 3.5% in 2018 and 0.6% in 2019.

The VRs also consider their moderate market shares (end-2018: between 2% and 4% of banking sector assets), limited franchises and ensuing limited competitive advantages in the volatile Turkish market. The banks provide a mix of services to corporate and commercial customers, small and medium-sized companies (SMEs, which are most sensitive to swings in the economy), and retail customers.

Asset-quality risks for the banks have increased, as for the sector, given the weakening growth outlook, the higher Turkish lira interest rate environment and local-currency depreciation. The banks' significant FC loan exposure and the potential impact of depreciation on often weakly hedged borrowers' ability to service their debt have added to the risks. FC lending amounted to 22% (TEB), 33% (QNB Finansbank), 38% (INGBT) and 54% (Denizbank) of the banks' respective gross loans at end-2018. In addition, they have significant exposure, to varying degrees, to the SME segment - which is highly sensitive to the weakening growth outlook.

Exposures to the construction (which can include real estate) and energy sectors, which have come under pressure as the operating environment has weakened, are additional sources of risk, to varying degrees at all four banks, but to a more limited extent at TEB and INGBT. INGBT has almost no electricity generation and distribution exposure. Lending to the tourism and agriculture sectors is significant at Denizbank, although the outlook for the tourism sector has improved.

Project finance - mainly comprising long-term, FC-denominated, slowly amortising energy and infrastructure loans - is significant at Denizbank and QNB Finansbank (about 20% of the banks' respective gross loans). The presence of state debt assumption and revenue guarantees, and of feed-in tariffs set in US dollars in the case of some renewable energy projects, partly mitigates the credit risk.

TEB and INGBT reduced their loan books in 2018 on a foreign-exchange (FX)-adjusted basis, mainly through FC loan deleveraging, while QNB Finansbank and Denizbank increased lending above the sector average. Growth at QNB Finansbank was driven by corporate lending (including in FC) - a segment in which the bank aims to increase its market share. However, the bank reversed some of its growth in 4Q18 due to the weakening outlook. Loan growth at Denizbank was driven by agricultural and credit card lending but it reduced FC lending slightly in 2018.

All four banks' non-performing loan (NPL) ratios have risen. The pace of deterioration increased in 4Q18 following the heightened currency and interest rate volatility in 3Q18. NPLs amounted to 4.1% (TEB), 4.3% (INGBT), 4.6% (Denizbank) and 6.1% (QNB Finansbank) of the banks' respective gross loans at end-2018, versus the sector average of 3.9% (based on unconsolidated bank balance sheets).

Stage 2 loans increased at all four banks in 2018 suggesting the potential for NPL growth - albeit the rise in Stage 2 loans was partly due to the transition to IFRS 9 in 1Q18. They ranged from a moderate proportion (9% at Finansbank) to a high proportion (15%, at TEB, 17% at Denizbank and 24% at INGBT) of respective gross loans at end-2018. The share of restructured loans within the Stage 2 category ranged from low (INGBT) to high (Denizbank, QNB Finansbank).

We expect further asset-quality weakening in 2019 given operating environment pressures, although the loan restructuring framework in Turkey could affect the migration of problematic loans to the NPL category.

The banks' capitalisation remain sensitive, as for the sector, to the lira depreciation (which inflates FC assets), albeit FC-subordinated debt from parent banks provides a partial hedge in the case of total capital ratios. Total regulatory capital ratios amounted to a high 21% (INGBT) and 17% (TEB) and a reasonable 15% (QNB Finansbank, Denizbank) at end-2018, comfortably above the 12% recommended by the regulator.

The banks generally have fairly limited securities portfolios, with the exception of QNB Finansbank, limiting negative revaluations of government bond portfolios in the case of interest rate rises. However, potential asset-quality deterioration remains a risk to the banks' capital positions, although pre-impairment profit provides a moderate buffer to absorb losses through income statements but is likely to weaken in 2019.

The banks' ���������ֳ� Core Capital (FCC)/risk-weighted asset (RWA) ratios ranged from a fairly low 10.0% at Denizbank to a moderate 11.0% at QNB Finansbank and 12.0% at TEB, and a reasonable 14.1% at INGBT at end-2018.

The banks' profitability metrics remained generally reasonable in 2018. INGBT and QNB Finansbank reported above-sector-average operating profit/RWA ratios (2018: 2.7% and 2.6%, respectively) underpinned by reasonable net interest margins, reflecting low funding costs (INGBT), and loan repricing and sizeable CPI-linked gains (QNB Finansbank), respectively. TEB's and Denizbank's operating profit/RWA ratios declined in 2018, albeit remaining reasonable at about 1.7% and 1.8%, respectively.

However, ���������ֳ� expects profitability to weaken in 2019 due to the weakening growth outlook, higher funding costs and higher impairment charges. It could deteriorate significantly in case of a marked weakening of asset quality.

The four banks are largely deposit funded. TEB and Denizbank reported below-sector-average loans/deposits ratios of 107% and 106%, respectively, at end-2018. Those of QNB Finansbank (130%) and INGBT (163%) were above the sector average, but have improved. In the case of INGBT, its high loans/deposits ratio partly reflects significant parent funding. Denizbank benefits from a stronger deposit franchise reflecting its fairly high level of pension salary accounts.

Refinancing risks have increased at the four banks, as a result of the deteriorating operating environment, recent heightened market volatility and tightening global conditions (driven by an increase in US dollar interest rates). However, with the exception of QNB Finansbank, the banks have a lower reliance on FC wholesale funding than larger bank peers.

At end-2018, net of parent funding, which is high at INGBT but moderate at the remaining banks, FC wholesale funding amounted to 7% (Denizbank), 8% (TEB), 15% (INGBT) and 27% (QNB Finansbank) of the banks' respective total funding. Denizbank is subject to EU sanctions due to its ownership of Sberbank and its wholesale funding primarily comprises sanction-free trade finance facilities and short-term loans.

The banks' available FC liquidity - comprising cash and interbank balances (including balances placed with the Central Bank of Turkey), maturing FX swaps and government securities - mean they should be able to cope with a short-lived market closure. However, FC liquidity could come under pressure in case of a prolonged loss of market access. Refinancing risks are mitigated by potential liquidity support from shareholders.

NATIONAL RATINGS
The affirmation of the National Ratings of all four banks and their domestic subsidiaries reflects our view that their creditworthiness in local currency relative to other Turkish issuers has not changed.

SUBSIDIARY AND AFFILIATED COMPANIES
The support-driven LTFC IDRs of Deniz Leasing, Deniz Moscow, QNB Finansleasing and QNB Finans Faktoring and, with the exception of Deniz Moscow, their LTLC IDRs and National Ratings, are equalised with those of their respective parents, Denizbank and QNB Finansbank, reflecting their strategic importance and close integration (including the sharing of risk assessment systems, customers, branding and management resources).

RATING SENSITIVITIES
IDRS, NATIONAL RATINGS AND SENIOR DEBT
The banks' LT IDRs, National Ratings and Support Ratings could be downgraded if the Turkish sovereign is downgraded, or if there is a sharp reduction in the ability or propensity of a parent bank to support its Turkish subsidiary. The IDRs are also sensitive to ���������ֳ�'s view of the risk of government intervention in the banking sector.

VRs
Further VR downgrades could result from a further marked deterioration in the operating environment, as reflected in negative changes in the lira exchange rate, domestic interest rates, economic growth prospects and external funding market access. A VR downgrade could result from bank-specific deterioration of asset quality, marked erosion of capital ratios, a weakening of the banks' FC liquidity positions (without this being offset by shareholder support) or deposit instability that leads to pressure on banks' liquidity and funding profiles.

The Outlooks could be revised to Stable if economic conditions stabilise and bank financial metrics do not deteriorate significantly.

SUBSIDIARY AND AFFILIATED COMPANIES
The IDRs of the banks' subsidiaries are sensitive to a change in their parents' ratings or a change in the ability or propensity of parent banks to provide support.

The rating actions are as follows:

Denizbank and Deniz Finansal Kiralama:
Long-Term Foreign-Currency IDRs: affirmed at 'BB-'; Negative Outlook
Long-Term Local-Currency IDRs: affirmed at 'BB'; Negative Outlook
Short-Term Foreign- and Local-Currency IDRs: affirmed at 'B'
Viability Rating (Denizbank only): affirmed at 'b+'
Support Ratings: affirmed at '3'
National Ratings: affirmed at 'AA(tur)'; Stable Outlook

Joint-Stock Company Denizbank Moscow:
Long-Term Foreign-Currency IDR: affirmed at 'BB-'; Negative Outlook
Long-Term Local-Currency IDR: downgraded to 'BB-' from 'BB'; Negative Outlook
Short-Term Foreign- and Local-Currency IDRs: affirmed at 'B'
Support Ratings: affirmed at '3'

QNB Finansbank, QNB Finans Finansal Kiralama A.S., QNB Finans Faktoring A.S.:
Long-Term Foreign-Currency IDRs: affirmed at 'BB-'; Negative Outlook
Long-Term Local-Currency IDRs: affirmed at 'BB'; Negative Outlook
Short-Term Foreign- and Local-Currency IDRs: affirmed at 'B'
Viability Rating (QNB Finansbank only): affirmed at 'b+'
Support Ratings: affirmed at '3'
National Ratings: affirmed at 'AA(tur)'; Stable Outlook
Senior unsecured long-term debt (QNB Finansbank only): affirmed at 'BB-'
Senior unsecured short-term debt (QNB Finansbank only): affirmed at 'B'

ING Bank A.S.:
Long-Term Foreign-Currency IDR: affirmed at 'BB-'; Negative Outlook
Long-Term Local-Currency IDR: affirmed at 'BB'; Negative Outlook
Short-Term Foreign- and Local-Currency IDRs: affirmed at 'B'
Viability Rating: affirmed at 'b+'
Support Rating: affirmed at '3'
National Rating: affirmed at 'AA(tur)'; Stable Outlook

Turk Ekonomi Bankasi:
Long-Term Foreign-Currency IDR: affirmed at 'BB-'; Negative Outlook
Long-Term Local-Currency IDR: affirmed at 'BB'; Negative Outlook
Short-Term Foreign- and Local-Currency IDRs: affirmed at 'B'
Viability Rating: affirmed at 'b+'
Support Rating: affirmed at '3'
National Rating: affirmed at 'AA(tur)'; Stable Outlook
Senior unsecured long-term debt: affirmed at 'BB-'
Senior unsecured short-term debt: affirmed at 'B'

Contact:

Primary Analysts
Lindsey Liddell (Denizbank, QNB Finansbank)
Director
+44 20 3530 1008
���������ֳ� Limited
30 North Colonnade
London E14 5GN

Dmitri Vasiliev (Joint-Stock Company Denizbank Moscow)
Director
+7 495 956 5576
���������ֳ� CIS Limited
26 Valovaya Street
Moscow 115054

Aslan Tavitov (QNB Finansleasing, QNB Finans Faktoring)
Associate Director
+44 20 3530 1788
���������ֳ� Limited
30 North Colonnade
London E14 5GN

Behruz Ismailov (Deniz Finansal Kiralama)
Associate Director
+49 69 768 076 116
���������ֳ� Limited
30 North Colonnade
London E14 5GN

Ahmet Kilinc (INGBT)
Associate Director
+44 20 3530 1272
���������ֳ� Limited
30 North Colonnade
London E14 5GN

Aurelien Mourgues (TEB)
Associate Director
+44 20 3530 1855
���������ֳ� Limited
30 North Colonnade
London E14 5GN

Secondary Analysts
Aurelien Mourgues (Deniz Finansal Kiralama, QNB Finansleasing, QNB Finans Faktoring)
Associate Director
+44 20 3530 1855

Ahmet Kilinc (QNB Finansbank, Denizbank)
Associate Director
+44 20 3530 1272

Cem Bilgin (TEB, INGBT)
Analyst
+44 20 3530 1230

Ilya Sarzhin (Joint-Stock Company Denizbank Moscow)
Analyst
+7 495 956 9901

Committee Chairperson
Christian Scarafia
Senior Director
+44 20 3530 1012


Media Relations: Louisa Williams, London, Tel: +44 20 3530 2452, Email: louisa.williams@thefitchgroup.com

Additional information is available on
Applicable Criteria
Bank Rating Criteria (pub. 12 Oct 2018)
Future Flow Securitization Rating Criteria - Effective from 4 February 2019 to 3 July 2019 (pub. 04 Feb 2019)
National Scale Ratings Criteria (pub. 18 Jul 2018)
Non-Bank Financial Institutions Rating Criteria (pub. 12 Oct 2018)

Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
Solicitation Status
Endorsement Policy