How To Understand And Understand The Financial Sector In Turkish Finance Companies

Download (0)

Full text

(1)

SECTOR COMMENT

Table of Contents:

SUMMARY OPINION 1

OVERVIEW OF THE LEGISLATION 2 OVERVIEW OF THE TURKISH NON-

BANK FINANCING SECTOR 3

APPENDIX 1 5

MOODY’S RELATED RESEARCH 5

Analyst Contacts:

FRANKFURT +49.69.70730.700 Arif Bekiroglu +49.69.70730.773 Assistant Vice President – Analyst

arif.bekiroglu@moodys.com

Carola Schuler +49.69.70730.766 Managing Director – Banking

carola.schuler@moodys.com

Turkish Finance Companies: New legislation on Financial Leasing, Factoring and Financing Institutions Is Credit Positive

Summary Opinion

On 13 December 2012, Turkey’s Banking Regulation and Supervision Agency (BRSA) passed legislation affecting financial leasing, factoring and financing institutions. In our view, this legislation is credit positive for the Turkish financial sector because it builds on existing legislation

1

to provide a stronger legal framework and as it increases the effectiveness of the sector’s surveillance and supervision. This should result in the healthy development of a sector at the early stages of its evolution and should support growth in the Turkish economy as demand for financial services intermediation evolves. Specifically, the legislation is credit positive because it:

» Provides revenue diversification and growth opportunities for leasing companies and small and medium-sized enterprises (SMEs) in Turkey;

» Enhances international cooperation and clarifies the legal framework under which these companies will be coordinated. This should lead to new, longer-term capital flowing into the system;

» Introduces minimum capital limits and transparent shareholding structures, which improves the sector’s institutionalisation;

» Clarifies the legal framework for disputes and delinquencies and introduces fines for non-compliance with regulation.

We note that the current ratings of Turkish finance companies currently incorporate the trends and expectations we present in this report.

1

The law follows the existing Financial Leasing Act from 1985 and the Decree Law on borrowing money from 1983.

(2)

Overview of the legislation

Legislation should diversify revenue and provide growth opportunities to the economy Foremost, the BRSA’s legislation now permits financial leasing companies to finance operating leases, but also sanctions the financing of sub-leases, software leases, sales and lease-backs. Moreover,

provisions have been included to facilitate the financing of air and sea vehicles, though these are costly assets that require specialised management skills and strong balance sheets; as a result, developments on this front are only likely to be gradual. Overall, these changes should improve leasing companies’

revenue diversification and growth, and should provide new financing opportunities for domestic companies, especially SMEs that are a major (and growing) part of the Turkish economy. Since 2009, the economy has grown by 22%, with an estimated 2012 GDP of $786.5 billion. We project further growth of 3.8% in 2013 and 4% in 2014.

Regulation now aligned with international standards

The new legislation has also aligned the definition of financial leasing, factoring and financing transactions with international standards. It also clarifies the legal framework under which these financing companies will operate in a coordinated and consistent fashion, while the scope of factoring transactions is to be re-regulated in line with international practices. We believe that this will increase the sector’s attractiveness to foreign investors that are looking for diversification opportunities in the Turkish financial sector. This should result in new, longer-term capital and product expertise inflows into the system.

Minimum capital levels, transparent shareholding and a centralised billing system improve institutionalisation and operational transparency

Additional highlights include a requirement for financing firms to have minimum paid-in capital of TRY20 million ($11.4 million), which aims to ensure a certain level of institutionalisation. It also requires shareholding structures to be transparent and easily understood for supervisory purposes and outlines the minimum recruitments for shareholders and managers in relation to their professional and credit track records. The legislation also outlines limits on related-party credits and guarantees given to individual shareholders, which are restricted to the firm’s core operational activities and cannot exceed 10% of paid-in capital. Total related-party credits and guarantees cannot exceed 20% of capital, although the BRSA has the right to reduce this limit to 5% and increase it to 25%.

The centralised billing system

2

aims to ensure that receivables are based only on the sale of goods and services in factoring transactions financed by companies and to prevent the usage of multiple billing.

In addition, we believe that it will provide further insight to the evolution of the indebtedness of the SME sector, as their funding needs are more readily assessed.

Legal and regulatory framework has been strengthened

The legislation provides additional clarity with regard to the legal framework followed in disputes and procedure to be followed in recovery collection from delinquencies. This includes fines in cases of non- compliance with regulation, which should contribute to the transparency of the system and improve its institutionalisation.

2

The information on the receivables (including the details of the receipts they are in possession of) from factoring firms’ and banks’ will be collected centrally.

(3)

The BRSA remains the main supervisory body of the sector and already receives quarterly reports from finance companies in standard format. Overall, the regulatory framework is not as advanced as it is for banks, due to its small share of overall financial intermediation which is only at the early stages of its development. However, the market-leading finance companies are typically bank-owned captives and are therefore – together with their parents – subject to the Basel II regulatory, capital and supervisory framework. In our view, such bank-owned and bank-managed finance companies bring a level of discipline and stability in risk taking and risk management during the sector’s evolution from infancy.

Overview of the Turkish non-bank financing sector

As of September 2012, the Turkish banking system’s total assets were TRY1.4 billion ($754 million), with total credits of TRY775 million ($437 million).

3

The total assets and receivable portfolios outstanding were TRY20 million and TRY17 million for financial leasing companies, TRY16 million and TRY15 million for factoring companies and TRY11 million and TRY10 million for consumer financing firms, respectively (see Figure 1). The sector is still in its infancy with total outstanding receivables equivalent to just 3% of Turkey’s GDP.

FIGURE 1

Evolution of Total Assets of Financing Companies in Turkey

Source: BRSA

Currently, the system’s non-bank financing sectors are highly fragmented (31 financial leasing companies, 78 factoring companies and 13 financing firms), whereby the leading companies are typically captive subsidiaries of larger domestic banks. According to BRSA data, as of Q3 2012, the system average leverage was sound at 4.4x for leasing companies, and 4.5x for factoring firms, and high at 12.4x for consumer finance companies.

3

BRSA data

0 5000 10000 15000 20000 25000

Q1 2008 Q2

2008 Q3 2008 Q4

2008 Q1 2009 Q2

2009 Q3 2009 Q4

2009 Q1 2010 Q2

2010 Q3 2010 Q4

2010 Q1 2011 Q2

2011 Q3 2011 Q4

2011 Q1 2012 Q2

2012 Q3 2012

Financial Leasing Factoring Consumer Finance

M illi on TR Y

(4)

FIGURE 2

Leverage of Leasing, Factoring and Consumer Finance Companies

Source: BRSA

In terms of asset quality, leasing companies showed a relatively high non-performing receivables to gross receivables ratio of 8%, while factoring firms performed better with a moderate non-performing receivables ratio of 5%, and consumer finance firms displayed the lowest such ratio at 3% (see Figure 3). In our opinion, the currently strong asset-quality indicators of consumer finance assets are underpinned by the high growth in the segment and the benign credit environment since the 2009 recession, although it could experience volatility in a downturn.

FIGURE 3

Asset Quality Trends of Leasing, Factoring and Consumer Finance Companies

Source: BRSA

Overall, the recent regulatory developments on the finance firms should support the continued and healthy expansion of the segment in the fast growing financial and banking sector in Turkey.

- 2 4 6 8 10 12 14 16

Q1 2008

Q2 2008

Q3 2008

Q4 2008

Q1 2009

Q2 2009

Q3 2009

Q4 2009

Q1 2010

Q2 2010

Q3 2010

Q4 2010

Q1 2011

Q2 2011

Q3 2011

Q4 2011

Q1 2012

Q2 2012

Q3 2012

Financial Leasing Factoring Consumer Finance

0%

2%

4%

6%

8%

10%

12%

14%

16%

Q1 2008 Q2

2008 Q3 2008 Q4

2008 Q1 2009 Q2

2009 Q3 2009 Q4

2009 Q1 2010 Q2

2010 Q3 2010 Q4

2010 Q1 2011 Q2

2011 Q3 2011 Q4

2011 Q1 2012 Q2

2012 Q3 2012

Financial Leasing Factoring Consumer Finance

(5)

Appendix 1

Moody’s rates three Turkish finance companies,

Total Assets*

US$ (thousands)

Issuer Rating

National Scale Ratings **

Foreign

Currency Local

Currency

Finans Finansal Kiralama A.S. 689,691 Ba3(NEG) - -

Ekspo Faktoring A.S. 127,512 Ba3 (STA) Ba3 (STA) Baa1.tr (STA)

C Faktoring A.S. 127,197 - - Baa1.tr (STA)

Source: Moody’s Investor Service, ratings are as of publication date Note: * as of year-end 2011

** National Scale Ratings (NSR): National scale ratings are intended primarily for use by domestic investors and are not comparable to Moody's globally applicable ratings; rather they address relative credit risk within a given country. A Aaa rating on Moody's National Scale indicates an issuer or issue with the strongest creditworthiness and the lowest likelihood of credit loss relative to other domestic issuers. National Scale Ratings, therefore, rank domestic issuers relative to each other and not relative to absolute default risks. National ratings isolate systemic risks; they do not address loss expectation associated with systemic events that could affect all issuers, even those that receive the highest ratings on the National Scale.

Moody’s Related Research

Credit Opinions:

» Finans Finansal Kiralama A.S.

» Ekpso Factoring A.S.

» C Factoring A.S.

To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of

this report and that more recent reports may be available. All research may not be available to all clients.

(6)

Report Number: 149478

Author

Arif Bekiroglu Production Specialist

Wendy Kroeker

© 2013 Moody’s Investors Service, Inc. and/or its licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. (“MIS”) AND ITS AFFILIATES ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY’S (“MOODY’S

PUBLICATIONS”) MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.

All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS”

without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources.

However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall MOODY’S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY’S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY’S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained herein must make its own study and evaluation of each security it may consider purchasing, holding or selling.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.

MIS, a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MIS have, prior to assignment of any rating, agreed to pay to MIS for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Shareholder Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

For Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of

MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty

Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within

the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you

represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you

nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning

of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of

the issuer, not on the equity securities of the issuer or any form of security that is available to retail clients. It would be dangerous for

retail clients to make any investment decision based on MOODY’S credit rating. If in doubt you should contact your financial or other

professional adviser.

Figure

Updating...

References

Related subjects :