Moody's Investors Service has today upgraded
the financial strength rating (FSR) of Yapi ve Kredi Bankasi (YKB) to D-
from E+ and the long-term local currency deposit rating (LCDR) to A3 from
Baa1, following the bank's merger with Kocbank. The outlook on the D-
FSR is positive.
In upgrading the FSR to D-, Moody's recognises the immediate improvement
in YKB's capitalisation as a result of the merger with Kocbank, and notes
the ongoing 'de-risking' of the bank's balance sheet. This balance-sheet
restructuring was initiated when Kocbank acquired a majority stake in YKB
in September 2005 and involved the repayment of a significant part of the
outstanding loans to the Cukurova group, the sale of non-core equity
participations, the provisioning of unfunded pension fund liabilities
and the recognition and provisioning of other impaired assets.
Moody's adds that the upgrade of the FSR also reflects the significant
progress that has been made with regard to the operational integration
of the YKB and Kocbank franchises. The merger has created the
fourth-largest private sector bank in Turkey, with leadership positions
in credit cards and fund management, and a deposit market share of about
10.3% (as of Sept 15). Moody's notes that the two banks have been
managed as a single entity since the first quarter of 2006 and a number
of ongoing projects have been aligning the two banks' IT infrastructure,
risk management and business development processes and strategy. The
positive outlook on the FSR reflects the expected improvements in
franchise strength and profitability as YKB exploits synergies over the
next two to three years.
Moody's explains that the upgrade of the LCDR reflects the growing
systemic importance of YKB within the Turkish banking sector and the
increased likelihood of support from the financial authorities, in the
event of need. Moody's considers banks with a deposit market share of
around 10% or higher to be 'too important to fail' in Turkey. The A3 LCDR
is at the ceiling for such deposits in Turkey and incorporates the bank's
stand-alone financial strength, as well as the likelihood of support from
its controlling shareholders and the Turkish financial authorities.
As a result of the merger, Koc Financial Services (KFS) group now owns
80.27% of YKB. Koc Holding and Unicredito Italiano SpA (A1/Prime-1/B-)
each hold a 50% stake in KFS. Moreover, the merger means that Kocbank has
ceased to exist as a separate legal entity and Moody's has consequently
withdrawn all the bank's ratings. Kocbank's rights, receivables,
obligations and liabilities have been transferred to YKB.
Headquartered in Istanbul, Turkey, Yapi ve Kredi Bank reported total
assets of around YTL45.7 billion (US$29.2 billion) at the end of
September 2006.
