The following is a press release from Standard & Poor's:
-- Turkish bank Albaraka Turk continued to rapidly grow its loan book for the third consecutive year.
-- New loans to the risky construction sector are the main source of growth and have caused the bank's already weak capitalization to deteriorate, in our opinion.
-- We are revising our outlook to negative from stable and affirming the 'BB/B' long- and short-term ratings on Albaraka Turk.
-- The negative outlook reflects the possibility that we could downgrade the bank during the coming year, because of our negative view of its lending strategy and the subsequent pressure on its capital and future asset quality. (source)
-- Turkish bank Albaraka Turk continued to rapidly grow its loan book for the third consecutive year.
-- New loans to the risky construction sector are the main source of growth and have caused the bank's already weak capitalization to deteriorate, in our opinion.
-- We are revising our outlook to negative from stable and affirming the 'BB/B' long- and short-term ratings on Albaraka Turk.
-- The negative outlook reflects the possibility that we could downgrade the bank during the coming year, because of our negative view of its lending strategy and the subsequent pressure on its capital and future asset quality. (source)
PARIS (Standard & Poor's) June 30, 2011--Standard & Poor's Ratings Services today said it revised to negative from stable its outlook on Turkey-based bank Albaraka Turk Katilim Bankasi AS (Albaraka Turk). At the same time, we affirmed our 'BB/B' long- and short-term counterparty credit ratings on the bank.
The outlook revision follows Albaraka Turk's pursuit of what we consider as an ambitious growth strategy since 2007. The bank's efforts to grow lending have led its loan book to more than double in absolute terms in the past three years. The new lending, especially in 2010, resulted mostly from loans in the construction sector, including to residential project developers, a segment we view to be high risk. At the end of 2010, the construction sector accounted for about 27% of Albaraka Turk's funded customer loans, and a high 32% of on-and off-balance-sheet credit risk. In addition, this fast growth has surpassed the bank's capital generation over the same period and led to weakening in the regulatory capital ratio and in our the risk-adjusted capital (RAC) ratio, our measure of banks' capital. At year-end 2010, Albaraka Turk's regulatory capital ratio stood at 14.1%, compared to 21.7% at year-end 2007, far below ratios for Turkish banks. At 5.5% before diversification adjustments, our estimated RAC ratio at year-end 2010 versus 6.2% at year end-2009 also
illustrates the bank's deteriorating capital, which continues to lag behind levels at domestic peers.
The bank's current asset quality metrics are adequate, in our view. They compare well with peers, based on its ratio of nonperforming loans (NPL) to gross loans at 2.9% on March 31, 2011. NPL continued to rise in 2010, however, increasing by 12% in absolute terms. We believe that Albaraka Turk's rapid growth could push up the number of problematic loans as new loans season, especially if the Turkish economy's current brisk growth slackens.
The negative outlook reflects the possibility that we could downgrade Albaraka Turk during the coming year, because of our negative view of its lending strategy and the subsequent pressure on its capital and future asset quality.
Although we understand that the bank aims to keep loan growth in 2011 below 15%, we are concerned about the current composition of its loan book and the high share of unseasoned loans that will drive future asset quality. We expect the bank's core operational performance to continue to provide support for ratings over the medium term.
We could lower the ratings on Albaraka Turk if it continues what we view as its negative lending strategy and fails to shore up its balance sheet and capitalization. An upgrade would hinge on the bank's RAC ratio exceeding 7%, diversification of its loan book by industry, accompanied by decreasing exposure to riskier segments, and less ambitious balance sheet growth.
