Turkiye Garanti Bankasi A.S.
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Turkiye Garanti Bankasi A.S.
Primary Credit Analyst:
Magar Kouyoumdjian, London (44) 20-7176-7217; magar.kouyoumdjian@standardandpoors.com
Secondary Contact:
Goeksenin Karagoez, Paris (33) 1-4420-6724; goeksenin.karagoez@standardandpoors.com
Table Of Contents
Major Rating Factors
Outlook
Rationale
Related Criteria And Research
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Additional
SACP bbb- + Support 0 + Factors -1
Anchor bbb- Issuer Credit Rating
Business GRE Support 0
Position
Adequate 0
Capital and
Earnings
Adequate 0
Group
Support 0
Risk Position Adequate 0 BB+/Stable/--
Funding Average
0 Sovereign
Support 0
Liquidity Adequate
Major Rating Factors
Strengths: Weaknesses:
• Strong commercial position in an environment with • Risky economic and financial environment and high
good opportunities for business growth. exposure to the sovereign.
• Strong management. • Vulnerability of asset quality to systemic shocks.
• Good financial profile and performance. • High competition and limited geographic
diversification.
Outlook: Stable
Standard & Poor's Ratings Services' stable outlook on Turkey-based Turkiye Garanti Bankasi A.S. (Garanti) and its
core subsidiary Garanti Finansal Kiralama (Garanti Leasing) reflects that on the Republic of Turkey (foreign
currency BB+/Stable/B; local currency BBB/Stable/A-2). Bank-specific factors that could lead to a revision of the
ratings appear limited. Rating actions on the bank and its leasing subsidiary will therefore largely stem from rating
actions on the sovereign.
A positive rating action on the foreign currency rating on Turkey would trigger a similar action on the bank and its
leasing subsidiary. Likewise, any negative rating action on the sovereign would trigger a corresponding action on
Garanti and Garanti Leasing.
Rationale
The starting point for our ratings on Garanti is its 'bbb-' anchor, which is based on our view of the banking system in
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Turkey. The ratings also reflect our assessment of Garanti's business position as "adequate", capital and earnings as
"adequate," risk position as "adequate", funding as "average", and liquidity as "adequate", as our criteria define these
terms.
The long-term rating is one notch below Garanti's stand-alone credit profile (SACP) and in line with the long-term
foreign currency sovereign credit rating on Turkey. In our view, Garanti has "high systemic importance" and we
classify the Turkish government as "supportive" toward its banking sector under our criteria. However, this does not
result in an uplift to the rating, since the SACP is higher than the rating on the sovereign. We have equalized the ratings
on Garanti Leasing with those on Garanti because of its "core" status to Garanti, reflecting Garanti Leasing's very close
organizational and operational integration with its owner.
Anchor: 'bbb-' for banks operating in Turkey
Our bank criteria use our Banking Industry Country Risk Assessment's economic risk and industry risk scores to
determine a bank's anchor, the starting point in assigning an issuer credit rating (ICR). Our anchor for a commercial
bank operating in Turkey is 'bbb-', based on an economic risk score of '6' and an industry risk score of '5'.
In our view, Turkey displays economic volatility and structural imbalances, in particular through its high current
account deficit and net external debt. We believe these factors expose the financial system and export-oriented
industries to external shocks.
With regard to industry risk, we view Turkey's overall institutional framework as positive, as shown by the authorities'
more proactive and prudent stance toward the banking industry. We also believe that the industry has largely
stabilized and benefits from adequate pricing power without major market distortions. Nevertheless, Turkish banks'
increased risk appetites add to funding risks that stem from their typically granular but short-term customer deposit
bases.
Table 1
Turkiye Garanti Bankasi A.S. Key Figures*
--Year-ended Dec. 31--
(Mil. TRY) 2012 2011 2010 2009 2008
Adjusted assets 177,466.6 161,368.1 135,769.5 115,574.5 98,155.2
Customer loans (gross) 103,429.2 92,990.7 72,157.0 55,840.4 53,030.9
Adjusted common equity 21,013.5 18,293.9 14,881.0 12,801.8 9,722.6
Operating revenues 9,576.6 8,132.9 7,824.2 8,433.2 5,768.3
Noninterest expenses 4,110.4 3,766.1 3,451.4 2,860.0 2,919.5
Core earnings 3,346.5 3,191.9 3,424.0 3,094.7 1,926.0
*After Standard & Poor's adjustments. TRY--Turkish lira.
Business position: A top-tier private bank in Turkey
We consider Garanti's business position "adequate". This reflects our view of Garanti as one of the top-tier private
banks in Turkey; its consolidated assets totaled Turkish lira (TRY) 178 billion (about $99 billion) on Dec. 31, 2012.
Garanti has consistently built its market share in Turkey, and held about 13% of the system's customer loans and
deposits on Dec. 31, 2012. Garanti is a universal bank with a broad mix of business lines and operates mainly
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throughout Turkey. In our opinion, the bank has an experienced and professional management team, which has a
demonstrated track record of steering the bank through difficult periods. In addition, the team is stable and middle
management strong.
Standard & Poor's considers that with good long-term economic prospects, opportunities for growth are strong for
leading Turkish financial institutions. Market penetration is generally low with respect to many banking services, and
the base of potential customers is growing rapidly. Several developments in Turkey, including urbanization and a
young population, provide the potential for further expansion of retail banking (including mortgage lending) if the
economic fundamentals remain favorable, particularly lower inflation and interest rates. Banks like Garanti, with a solid
customer franchise, sophisticated information technology (IT) systems, and efficient distribution networks, are strongly
placed to prosper in such an environment.
Garanti's international operations include subsidiaries in The Netherlands (GarantiBank International N.V.; GBI; not
rated), Russia (Garanti Bank Moscow; not rated), and Romania (Garanti Bank S.A.; not rated); branches in
Luxembourg, Malta, and Cyprus; and representative offices in London, Dusseldorf, Moscow, and Shanghai. Established
in 1990, GBI is the second largest Turkish bank outside of Turkey. It operates in The Netherlands and Germany and
has representative offices in Turkey, Ukraine, and Switzerland.
The bank's core business lines are international trade finance, private banking, structured finance, and corporate and
commercial banking. Garanti Bank S.A., previously part of GBI's operations in Romania, is Garanti's first consumer
banking project outside of Turkey and has expanded its distribution network to 78 branches. The Moscow operations
comprise a licensed bank subsidiary; Garanti is one of the few foreign banks with a general banking license in Russia.
The remaining international operations focus on financing international trade and foreign exchange transactions.
Garanti has several financial subsidiaries that are active in leasing (Garanti Leasing), factoring, portfolio management,
brokerage, pension funds, information technology services, and insurance. The bank is trying to increase cross-selling,
and these subsidiaries are expected to contribute further to Garanti's revenues.
Table 2
Turkiye Garanti Bankasi A.S. Business Position*
--Year-ended Dec. 31--
(%) 2012 2011 2010 2009 2008
Total revenues from business line (mil. TRY) 9,634.9 8,391.9 7,833.7 8,433.2 5,768.3
Commercial banking/total revenues from business line 36.0 39.4 31.8 30.0 30.3
Retail banking/total revenues from business line 19.5 34.7 32.1 29.9 36.5
Commercial & retail banking/total revenues from business line 25.1 21.9 28.2 35.2 27.1
Insurance activities/total revenues from business line 3.4 3.3 3.0 2.1 2.9
Other revenues/total revenues from business line 16.1 0.7 5.0 2.8 3.2
Return on equity 16.5 19.0 21.8 25.6 N/A
*After Standard & Poor's adjustments. TRY--Turkish lira. N/A--Not applicable.
Capital and earnings: Sufficient earnings to sustain capitalization at adequate levels
We assess Garanti's capital and earnings as "adequate". This reflects our view of the bank's good earnings capacity and
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adequate capitalization. In our view, the bank has improved its financial performance in recent years, following the
disposal of nonyielding assets and some efficiency improvements. We also consider that Turkish banks have benefited
from asset-liability repricing gaps in a reducing-interest-rate environment.
Strong earnings in recent years could come under some pressure, however, through reducing margins, particularly
given relatively high credit costs. The bank has successfully addressed interest margin pressure through repricing and
refocusing on higher-margin sectors. Retained earnings are sufficient to sustain capitalization at adequate levels during
fairly strong risk-asset growth over the next 12-18 months. The projected risk-adjusted capital (RAC) ratio before
adjustments should be 88.5%-99%. The three-year average earnings buffer, which measures the capacity for a bank's
earnings to cover normalized losses, is moderate at about 90 basis points.
Garanti's capital ratios have improved since their low point in 2001, and have remained relatively stable since 2003,
despite strong business growth. The dividend payout is expected to remain relatively low, allowing room for business
growth.
We expect the bank's financial performance to remain satisfactory, despite tightening margins in the market. In our
view, Garanti's performance will continue to be closely correlated to the Turkish financial environment.
Garanti's core financial performance is satisfactory and benefits from high interest margins, increasing business
volumes, and improving efficiency. Fees and commissions are among the largest in the local banking sector, reflecting
the bank's high involvement in core banking business and strong position in retail banking, providing improving
revenue diversification. Garanti's efficiency remains satisfactory, with the cost-to-income ratio at 43% in 2012.
Table 3
Turkiye Garanti Bankasi A.S. Capital And Earnings*
--Year-ended Dec. 31--
(%) 2012 2011 2010 2009 2008
Tier 1 capital ratio 15.5 14.1 15.7 16.6 13.5
S&P RAC ratio before diversification N.M. 8.7 7.6 N.M. N.M.
S&P RAC ratio after diversification N.M. 8.4 7.3 N.M. N.M.
Net interest income/operating revenues 66.9 64.4 66.6 64.4 59.5
Fee income/operating revenues 21.6 26.2 24.4 20.5 27.4
Market-sensitive income/operating revenues 6.3 4.1 5.1 10.6 8.5
Noninterest expenses/operating revenues 42.9 46.3 44.1 33.9 50.6
Preprovision operating income/average assets 3.2 2.9 3.5 5.2 N/A
Core earnings/average managed assets 2.0 2.1 2.7 2.9 N/A
*After Standard & Poor's adjustments. N/A--Not applicable. N.M.--Not meaningful.
Table 4
Turkiye Garanti Bankasi A.S. RACF [Risk-Adjusted Capital Framework] Data
Average Basel Standard & Average Standard
(TRY 000s) Exposure* Basel II RWA II RW (%) Poor's RWA & Poor's RW (%)
Credit risk
Government and central banks 53,705,009 0 0 38,515,609 72
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Table 4
Turkiye Garanti Bankasi A.S. RACF [Risk-Adjusted Capital Framework] Data (cont.)
Institutions 14,979,988 0 0 7,115,494 47
Corporate 79,239,090 0 0 111,250,922 140
Retail 34,069,621 0 0 36,983,482 109
Of which mortgage 10,874,185 0 0 5,872,060 54
Securitization§ 0 0 0 0 0
Other assets 10,359,458 0 0 18,068,828 174
Total credit risk 192,353,166 0 0 211,934,336 110
Market risk
Equity in the banking book† 49,449 0 0 147,927 299
Trading book market risk -- 0 -- 0 --
Total market risk -- 0 -- 147,927 --
Insurance risk
Total insurance risk -- -- -- 0 --
Operational risk
Total operational risk -- 0 -- 17,956,044 --
Standard & % of Standard &
(TRY 000s) Basel II RWA Poor's RWA Poor's RWA
Diversification adjustments
RWA before diversification 0 230,038,307 100
Total Diversification/Concentration -- (3,688,292) (2)
Adjustments
RWA after diversification 0 226,350,015 98
Tier 1 ratio Total adjusted Standard & Poor's
(TRY 000s) Tier 1 capital (%) capital RAC ratio (%)
Capital ratio
Capital ratio before adjustments 20,783,877 0.0 21,013,540 9.1
Capital ratio after adjustments‡ 20,783,877 0.0 21,013,540 9.3
*Exposure at default. §Securitization exposure includes the securitization tranches deducted from capital in the regulatory framework. †Exposure
and Standard & Poor's risk-weighted assets for equity in the banking book include minority equity holdings in financial institutions. ‡Adjustments
to Tier 1 ratio are additional regulatory requirements (e.g. transitional floor or Pillar 2 add-ons). RWA--Risk-weighted assets. RW--Risk weight.
RAC--Risk-adjusted capital.TRY--Turkish Lira. Sources: Company data as of Dec. 31, 2012, Standard & Poor's.
Risk position: Credit loss experience in line with the sector average
In our view, Garanti's risk position is "adequate". A supportive economic environment and an aggressive workout of
bad loans have resulted in significant asset quality improvement compared with earlier in the decade. Nonperforming
loans are reducing and were relatively low at 2.9% on Dec. 31, 2012. The bank's credit loss experience has been in line
with the sector average.
Economic prospects improved in Turkey following a short economic slowdown in 2008-2009. However, the country is
currently undergoing a soft landing, with moderated economic growth prospects. Given the rapid credit growth there,
we believe that asset quality remains vulnerable to systemic shocks, particularly given high unemployment and the
open foreign-currency position of corporate borrowers. Garanti's risk is diversified by individual borrowers, sectors,
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and asset classes, apart from geographic concentration in Turkey. The bank's product range is mostly focused on basic
banking activities and it has relatively limited investment banking operations.
Garanti has good risk management with adequate credit risk culture and market risk management tools. The loan
approval system is largely centralized, the risk culture is strong, and management has good experience of major
economic crises. Garanti's asset quality remains satisfactory, but could be further challenged by a tougher economic
environment. Loan growth moderated in 2012, with the loan portfolio increasing by 11% compared with 30% in each
of the previous two years. About half of loans were denominated in foreign currencies (mainly U.S. dollars and euros).
Over the past few years, the consumer and small and midsize enterprise sectors have experienced the most growth.
The bank focuses its retail activities on its general purpose and housing loans, in addition to its credit card business.
Overall, the financing of import-export transactions (which are typically lower risk and self-liquidating) continues to
represent a significant share of the total portfolio.
Garanti maintains a large degree of balance sheet liquidity, a major portion of which is composed of market-sensitive
instruments. In addition to its interbank placements, it has large securities portfolios, mainly comprising Turkish
government bonds, with 86% denominated in Turkish lira on Dec. 31, 2012. About 58% of the securities portfolio is at
floating rates, and 28% at inflation-linked rates. The bank has an asset-liability committee that meets weekly to
examine its open foreign exchange positions and interest rate mismatch. The foreign exchange position is monitored
daily by members of the treasury department and is kept at negligible levels.
Table 5
Turkiye Garanti Bankasi A.S. Risk Position*
--Year-ended Dec. 31--
(%) 2012 2011 2010 2009 2008
Growth in customer loans 11.2 28.9 29.2 5.3 N.M.
Total diversification adjustment / S&P RWA before diversification N.M. 3.7 4.3 N.M. N.M.
Total managed assets/adjusted common equity (x) 8.4 8.8 9.1 9.0 10.1
New loan loss provisions/average customer loans 1.3 0.4 0.1 3.0 N/A
Net charge-offs/average customer loans (0.0) (0.3) (0.9) (0.8) N/A
Gross nonperforming assets/customer loans + other real estate owned 2.9 2.4 3.5 4.5 2.6
Loan loss reserves/gross nonperforming assets 113.3 112.6 96.3 90.3 86.3
*After Standard & Poor's adjustments. N/A--Not applicable. N.M.--Not meaningful.
Funding and liquidity: Retains a strong level of liquid assets, with good access to international capital
markets
We consider Garanti's funding to be "average" and its liquidity "adequate". Funding is diversified and mostly based on
customer deposits, although the bank also uses foreign wholesale funds. Competition on deposits is fierce, although the
continuous growth of the branch network helps tap this stable funding source.
Like other major Turkish banks, Garanti maintains good access to international capital markets. These provide
longer-term funds at a cost comparable with that of customer deposits, but also introduce concentrations in liabilities
and rollover risk. Garanti has been able to tap the international debt markets, even in periods of extreme economic
turbulence, albeit at higher costs. Central bank funding is also available when needed.
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We view confidence sensitivity as strong for Garanti and other large Turkish banks. Liquidity ratios are tightening
owing to increasing loan leverage, which is in line with the rest of the sector. However, the bank still retains a strong
level of liquid assets. Refinancing requirements over the medium term are manageable in our view.
Table 6
Turkiye Garanti Bankasi A.S. Funding And Liquidity*
--Year-ended Dec. 31--
(%) 2012 2011 2010 2009 2008
Core deposits/funding base 64.0 67.2 68.3 68.7 67.0
Customer loans (net)/customer deposits 108.5 100.4 91.4 81.1 92.7
Long term funding ratio 81.5 83.5 83.9 85.1 78.4
Broad liquid assets/short-term wholesale funding (x) 1.0 1.1 1.5 1.8 0.6
Net broad liquid assets/short-term customer deposits (0.4) 1.7 12.9 20.6 (14.0)
Narrow liquid assets/3-month wholesale funding (x) 1.5 1.7 2.0 2.5 N/A
Net short-term interbank funding/total wholesale funding 32.6 17.2 27.2 16.5 (6.6)
Short-term wholesale funding/total wholesale funding 59.4 57.2 58.6 54.7 82.0
*After Standard & Poor's adjustments. N/A--Not applicable.
External support: No notches of uplift to the SACP
In our view, Garanti has "high systemic importance" and we classify the Turkish government as "supportive" toward its
banking sector under our criteria. However, this does not result in an uplift to the ICR, since the SACP is higher than
the foreign currency rating on the sovereign.
Additional rating factors: Minus one notch for the sovereign rating cap
The long-term rating on Garanti is one notch below the SACP and in line with the long-term foreign currency
sovereign credit rating on Turkey. This reflects our view that Garanti is unlikely to be able to withstand a scenario in
which Turkey defaults on its obligations, which account for a significant portion of Garanti's earning assets.
We have equalized the ratings on Garanti Leasing with those on Garanti because of its "core" status, reflecting Garanti
Leasing's full ownership by, and very close organizational and operational integration with, Garanti.
Related Criteria And Research
• Group Rating Methodology, May 13, 2013
• BICRA On Turkey Revised To Group '5' From Group '6', Nov. 9, 2011
• Banks: Rating Methodology And Assumptions, Nov. 9, 2011
• Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011
• Bank Capital Methodology And Assumptions, Dec. 6, 2010
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Anchor Matrix
Economic Risk
Industry
Risk 1 2 3 4 5 6 7 8 9 10
1 a a a- bbb+ bbb+ bbb - - - -
2 a a- a- bbb+ bbb bbb bbb- - - -
3 a- a- bbb+ bbb+ bbb bbb- bbb- bb+ - -
4 bbb+ bbb+ bbb+ bbb bbb bbb- bb+ bb bb -
5 bbb+ bbb bbb bbb bbb- bbb- bb+ bb bb- b+
6 bbb bbb bbb- bbb- bbb- bb+ bb bb bb- b+
7 - bbb- bbb- bb+ bb+ bb bb bb- b+ b+
8 - - bb+ bb bb bb bb- bb- b+ b
9 - - - bb bb- bb- b+ b+ b+ b
10 - - - - b+ b+ b+ b b b-
Ratings Detail (As Of June 12, 2013)
Turkiye Garanti Bankasi A.S.
Counterparty Credit Rating BB+/Stable/--
Counterparty Credit Ratings History
05-Apr-2013 BB+/Stable/--
04-May-2012 BB/Stable/--
22-Feb-2010 BB/Positive/--
23-Sep-2009 BB-/Stable/--
17-Nov-2008 BB-/Negative/--
01-Aug-2008 BB-/Stable/--
Sovereign Rating
Turkey (Republic of) (Unsolicited Ratings)
Foreign Currency BB+/Stable/B
Local Currency BBB/Stable/A-2
Turkey National Scale trAAA/--/trA-1
Related Entities
Garanti Finansal Kiralama A.S.
Issuer Credit Rating BB+/Stable/B
*Unless otherwise noted, all ratings in this report are global scale ratings. Standard & Poor's credit ratings on the global scale are comparable
across countries. Standard & Poor's credit ratings on a national scale are relative to obligors or obligations within that specific country.
Additional Contact:
Financial Institutions Ratings Europe; FIG_Europe@standardandpoors.com
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