Fitch Affirms Garanti Diversified Payment Rights Finance Company
Garanti DPR is a securitisation of diversified payment rights (DPR) originated by Turkiye Garanti Bankasi A. S. (Garanti, BBB/Stable/F2). DPRs are payment orders processed by banks and mainly reflect payments due on the export of goods and services, capital flows and personal remittances. Garanti DPR has purchased all present and future DPRs denominated in dollars, euros and pounds from Garanti, financed through issued notes that are secured on the DPRs. The programme has been in existence since 2002.
KEY RATING DRIVERS
The notes' ratings primarily reflect Garanti's 'BBB' Local Currency Issuer Default Rating, Fitch's going concern assessment (GCA) score on the bank and good performance of the programme resulting in high debt service coverage ratios (DSCRs).
Fitch maintains a GCA score of 'GC1' on the originator. This indicates that liquidation of the bank is extremely remote upon an entity default in a stressful environment. This is based on Garanti's position and its role in the Turkish economy, with significant market shares across all business segments. Garanti is Turkey's third-largest bank by assets with noticeable market shares across most business segments. At end 2015, the bank had unconsolidated assets of USD87.1bn and held about 11.3% of total deposits and 10.9% of total system assets (ie total loans and receivables) according to figures released by The Banks Association of Turkey.
In line with the peer DPR programmes in Turkey, DPR flows of Garanti DPR have slightly declined since 2014 mainly due to general macro-trends in and around Turkey (eg currency fluctuations, slow recovery in Europe, worsening geopolitical environment such as Turkey's involvement in the conflict in Syria and the breakdown of the Kurdish peace process) and Russian sanctions to Turkey is expected to further put a strain on DPR growth. However, no sharp and permanent drop is expected in Turkish exports and DPR volumes in the near term.
The total collections for Garanti's USD, euro and GBP DPR business in 2015 was USD108.7bn (a reduction of 2.3% on 2014) and USD40.7bn in the five months to June 2016, indicating the downward trend in the DPR volume is likely to continue this year. Despite the slight reduction in flow amounts, the programme continues to benefit from high coverage ratios. The quarterly tested collections DSCRs was 86x as of March 2016, well above the early amortisation trigger levels of 6x. Furthermore, the proportion of quarterly collections from designated depository banks, which signed irrevocable acknowledgement agreements, was around 85% in 1Q16, above the 60% trigger. All other early amortisation trigger tests were also passed comfortably.
RATING SENSITIVITIES
The most significant variables affecting the notes' ratings are the intrinsic credit quality of the bank, its GCA score, and the Turkish sovereign rating (BBB-/Stable). Although coverage levels are a key input as well, the DSCRs have been consistently high, and therefore the transaction should be able to withstand a significant decline in cash flows without it affecting the ratings.
Additionally, the ratings of The Bank of New York Mellon (BONY, AA/Stable/F1+) as the issuer's account bank may constrain the ratings of the DPR notes, if BONY were rated below the then ratings of the DPR notes and no remedial action was taken. Nevertheless, we would analyse any change in any of these variables to assess the possible impact on the transaction's ratings.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the information it has received about the performance of the DPR programme. There were no findings that were material to this analysis. Fitch has neither requested any third party assessment of the information about DPR flows nor conducted a review of origination files because there is no existing asset portfolio to assess in future flow transactions.
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