Reuters/London

 

Fitch Ratings has upgraded Alternatifbank’s long-term foreign currency Issuer Default Rating (IDR) to ‘BBB’ from ‘BB’ and its long-term local currency IDR to ‘BBB+’ from ‘BB’ and removed them from Rating Watch Positive (RWP).

The outlooks are stable and the bank’s Support Rating Floor (SRF) has been withdrawn, while the bank’s Viability Rating of ‘bb’ is unaffected.

The rating actions follow a change of ownership, effective last Thursday when Commercial Bank of Qatar acquired a 70.84% stake in the bank.

The upgrade of the IDRs, National Rating and Support Rating “reflect Fitch’s belief that CBQ would provide support, if required, to Alternatifbank (ABank).” Fitch said ABank was a strategically important subsidiary for Commercial Bank. SRFs are only assigned to banks whose primary source of external support is considered to be the sovereign. This is no longer the case for ABank.

The bank’s IDRs and National Rating are driven by potential support from Commercial Bank whose IDR of ‘A’ is driven by Fitch’s expectation of a very high probability of Qatari sovereign support for the bank, should it be required.

Fitch “believes the Qatari authorities are highly supportive of their banking sector and, subject to an extent to sovereign risks in Turkey, would allow support to flow through to foreign subsidiaries should this be required.”

ABank’s long-term foreign currency IDR and short-term foreign currency IDR are constrained by Turkey’s ‘BBB’ Country Ceiling. The long-term local currency IDR is notched down twice from Commercial Bank’s long-term IDR, reflecting Fitch’s classification of ABank as a ‘strategically important’ subsidiary for CBQ under its criteria. The stable outlook reflects the outlook on Commercial Bank long-term IDR.

Commercial Bank has minority stakes in small banks in Egypt and Oman. The ABank acquisition is a larger investment and the Turkish banking sector offers considerable growth opportunities at present, Fitch said.

Commercial Bank intends to make an offer for the 4.16% stake currently quoted on the Istanbul stock exchange, which will raise its ownership to 75%. The remaining 25% stake will remain with the Anadolu Group, a leading, diversified conglomerate in Turkey, Fitch added.

Assuming there is no narrowing in the ‘strategically important’ notching from Commercial Bank (currently two notches), ABank’s local currency IDRs are sensitive to any downgrade of The Qatar bank’s long-term IDR and Turkey’s long-term local currency IDR, Fitch said.

They could also potentially be sensitive to a weakening in Fitch’s classification of ABank to ‘limited importance’, although this is currently unlikely.

Under Fitch’s criteria, it is possible for a bank to be rated more than one notch above its sovereign of domicile in local currency. However, Fitch said, it does not assign any long-term local currency IDRs to Turkish banks owned by highly rated foreign parents higher than one notch above Turkey’s local currency sovereign rating.

This reflects Turkey’s still volatile operating environment and the fact that some uncertainty is likely to remain with respect to a foreign owner’s commitment to its subsidiary in a sovereign default scenario. As a result, an upgrade of CBQ’s IDR would not result in an upgrade of Alternatifbank’s local currency IDRs, the rating agency said.

For ABank’s National Rating to be downgraded, its long-term local currency IDR would have to be downgraded to ‘BBB-’.

ABank’s ‘BBB’ long-term foreign currency IDR is sensitive to i) any downgrade of Turkey’s ‘BBB’ Country Ceiling, or ii) a downgrade of Commercial Bank’s IDR by more than one notch. The outlook on CBQ’s IDR is currently stable, so this is not currently envisaged.

ABank’s short-term IDR is sensitive to a downgrade of Turkey’s Country Ceiling by more than one notch or to a multiple notch downgrade (at least three notches) of CBQ’s long-term IDR.