OREANDA-NEWS. Fitch Ratings has assigned VB DPR Finance Company's (VB DPR) Tranche 2016-A, - B, - C, - D, - E, - F and-G notes a 'A-' rating with Negative Outlook. The ratings address the likelihood of timely payment of interest and principal.

Fitch has also affirmed VB DPR's outstanding tranches (Tranche 2014-A, - B, - C, - D, - E, - F, and - G) at 'A-' with a Negative Outlook, following the issue of the new debt. The agency does not rate the remaining outstanding tranches (Tranche 2007-B, and 2011-A, and - C) but has considered their impact on the diversified payment rights (DPR) programme.

The underlying issuance is a future flow transaction of existing and future US dollar-, euro-, sterling - and Swiss franc-denominated DPRs originated by Turkiye Vakiflar Bankasi T. A.O. (Vakifbank, BBB-/Negative). VB DPR has purchased all present and future DPRs from Vakifbank, financed through issued debt backed by the DPRs, which are essentially payment orders processed by banks. DPRs can arise for a variety of reasons but mainly reflect payments due on the export of goods and services, capital flows and personal remittances. The programme has been in existence since 2005.

KEY RATING DRIVERS

Originator Credit Quality

Vakifbank's rating is aligned with the Turkish sovereign (BBB-/Negative). This reflects Fitch's view that there is a high probability that the authorities would provide support, if required, based on Vakifbank's majority ownership (58.45%) by the General Directorate for Foundations (GDF), which is fully controlled and managed by the Turkish state, and the bank's systemic importance.

GCA Score

Fitch has a Going Concern Assessment (GCA) score of GC1 on Vakifbank, based on its position as the third largest state-owned bank in Turkey and its role in the Turkish economy. Vakifbank had unconsolidated assets of USD67.1bn at June-2016, representing about 8.7% of total deposits and 8.2% of total system assets, according to the Banks Association of Turkey.

Three-Notch Uplift

The GC1 score enables Fitch to apply a three-notch uplift on VB DPR's ratings from Vakifbank's Local-Currency IDR of 'BBB-'. The notching uplift on DPR notes are supported by the bank's standalone creditworthiness and its importance to the Turkish banking system.

Low Coverage Levels

Fitch calculated the debt service coverage ratio (DSCR) for the programme to be 29.2x. This is based on offshore flows processed via specified correspondent banks as of August 2016 and incorporating Fitch's 'A-' interest rate stresses. The coverage ratio is above the related early amortisation triggers, but is in the low range among peer programmes.

The agency tested the sustainability of coverage under various scenarios, including FX stresses and a reduction in payment orders based on top 20 beneficiary concentrations. At present, the flows are adequate and the DSCRs are above coverage-related trigger levels set out in the transaction documents, but they are subject to significant decline in the event of a further reduction in flow.

Large Programme Size

Fitch estimates the new tranche combined with the outstanding notes represent about 3.1% of Vakifbank's total liabilities and 7.9% of total liabilities excluding customer deposits. VB DPR is one of the largest of Turkish DPR programmes. In the agency's view, the current relative debt of the programme is still reasonable but the combination of a decreasing offshore flow amount and further increase in programme debt could translate into rating pressure

Diversion Risk Reduced

Fitch believes DPR flows are more susceptible to diversion when the originating entity is state-owned. This risk is mitigated on several levels in this transaction. Seven leading correspondent banks, processing on average 80% of the collections, have signed acknowledgement agreements, while offshore flows are relatively well-distributed among these banks. In addition, the concentration of large beneficiaries is moderate and the absolute debt service amount is quite low.

RATING SENSITIVITIES

The most significant variables affecting the transaction's ratings are the bank's credit quality, its GCA score, the sovereign rating and coverage level. Fitch would analyse changes in any of these variables to assess the possible impact on the transaction's rating.

Another important factor that might lead to rating action is the level of future flow debt as a percentage of the bank's overall liability profile. This is factored into Fitch's analysis to determine the maximum notching differential allowed, given the GCA score. The outstanding note balance of VB DPR programme to Vakifbank's liability profile is currently deemed reasonable.

Nevertheless, changes in any of these variables would be analysed to assess the possible impact on the transaction's ratings.

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10

Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch 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.

Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION

The information below was used in the analysis.

- Investor reports and information provided by Turkiye Vakiflar Bankasi T. A.O. as at 02 September 2016