Corporate Credit Rating Nurol Yatırım Bankası A.Ş. ☐New ☒Update JCR Eurasia Rating evaluated the consolidated structure of “Nurol Yatırım Bankası A.Ş.” affirmed Sector: Banking the ratings as “AA (Trk)” on the Long-Term National Scale and as “A-1 (Trk)” on the Short-Term Publishing Date: Apr.21,2021 National Scale with ‘Stable’ outlooks. On the other hand, the Long Term International Foreign and Senior Chief Analyst Local Currency Ratings have been assigned as ‘BB+/ Negative’. Orkun Inan +90 212 352 56 73 Nurol Yatırım Bankası A.Ş. (hereinafter “Nurol Bank” or the “Bank”), incorporated on August, [email protected] 1998, is a national private bank. The Bank provides services in the field of Corporate Banking, Assistant Analyst Investment Banking and Treasury & Financial Institutions through its diversified corporate clientele Caglanur Tekin +90 212 352 56 73 with a staff force of 66 people in FYE2020. [email protected] The majority shareholders of the Bank were Nurol Holding A.Ş. (78.98%) and Nurol İnşaat ve Tic. RATINGS A.Ş. (16.70%), which also has direct and indirect control over the Nurol Group- Nurol Holding Long Short Inc., founded in 1989, has operations in construction, defense, finance, tourism, health, mining, real Term Term estate, marketing and manufacturing industries through 33 firms within the Nurol Group 4 joint AA A-1 Local Rating (Trk) (Trk) ventures and 11 domestic foreign associates and subsidiaries. Outlook Stable Stable National Key rating drivers, as strengths and constraints, are provided below. AA A-1 Issue Rating (Trk) (Trk) Foreign Currency BB+ B Strengths Constraints Local Currency BB+ B • Maintenance of loan-driven moderate growth • Scarce alternative delivery channels and lack FC Negative Negative strategy accompanied by defending margins, of revenue stream to provide continuity of International Outlook LC Negative Negative • The collection of overdue and non- efficiency rates, Sponsor Support 1 - Stand-Alone AB - performing loans supporting asset quality of • Ongoing credit risk concentration among 2020, the top ten cash and non-cash loans Foreign Currency BB+ - Local Currency BB+ - • Earnings power with core indicators above the customers deteriorating asset quality, FC Negative - Outlook sector and maintaining NIM, • Concerns on the bank’s asset quality and Sovereign* LC Negative - *Assigned by JCR on April 10, 2020 • Sufficient capital ratios continuing to indicate revenue streams and higher credit loss the capacity to absorb incidental losses, provisions due to Covid-19 outbreak RATIOS • High level of compliance with corporate worsening macroeconomic environment. Market Share (%) governance best practices and continuity of (Turkish Banking Sector) well-established risk management practices. 0.07 0.07 0.07 0.1 0.05 0.04 Considering the mentioned drivers, the Bank’s the Long-Term National Rating has been affirmed as “AA (Trk)”. Taking into account the capability to independently survive irrespective of the support 0.0 NIM (%) from the current shareholders and at the system level, adequate capitalization structure, internal 20 9.98 9.85 8.72 resource generation capacity, ability to access international funding markets and roll-over debt, the 8.49 6.88 10 presence of prudent provisions in addition to the high level of specific loan loss provisions and the asset quality accompanied by selective and efficiency focused credit policies as well as the possible 0 ROAA (%) negative effects of the Covid-19 outbreak on the Turkish banking sector.; the Bank has been affirmed 10 5.29 4.75 with ‘Stable’ outlooks in the long- and short-term perspectives. 3.82 2.94 3.43 0 Non-performing loans due to downward efficiency in economic activities caused by the Covid-19 ROAE (%) Pandemic and the erosion in the debt payment capacity raising provisioning requirement, resulting a 33.55 34.77 34.93 50 higher credit risk cost, and the impact of the decisions taken by the regulatory authorities on the sector 25.24 24.66 will be the issues to be monitored in the future. 0 CAR (%) 17.34 18.05 17.10 The Sponsor Support Note of Nurol Yatırım Bankası A.Ş. ’s has been determined considering the 15.64 20 15.24 financial strength and support willingness of the sole shareholder Nurol Holding that shall provide 15 assistance to the Bank to meet any immediate financial needs if required. In this regard, the Company’s 10 Sponsor Support Note has been affirmed as “1”, which denotes high level of external support. Growth Rate (%) 100 63.3 44.8 58.2 Considering high asset quality, diversified resource structure, balance sheet composition along with 32.9 21.4 strong internal equity generation capacity, corporate governance implementations of the Bank’s, the 0 Stand Alone Note of the Bank has been affirmed as “AB”, corresponding to high level in JCR Eurasia 2016 2017 2018 2019 2020 Rating’s notation system. Copyright © 2007 by JCR Eurasia Rating. Maslak Mahallesi Taşyoncası Sokak No:1/F F2 Blok Kat:2 34485 Sarıyer, Istanbul- Türkiye: +90(212)352.56.73 Fax: +90 (212) 352.56.75 Reproduction is prohibited except by permission. All rights reserved. All information has been obtained from sources JCR Eurasia Rating believes to be reliable and information/clarifications provided by the Company. However, JCR Eurasia Rating does not guarantee the truth, accuracy and adequacy of this information. JCR Eurasia Rating ratings are objective and independent opinions as to the creditworthiness of a security and issuer and not to be considered a recommendation to buy, hold or sell any security or to issue a loan. This rating report has been composed within the methodologies registered with and certified by the SPK (CMB-Capital Markets Board of Turkey), BDDK (BRSA-Banking Regulation and Supervision Agency) and internationally accepted rating principles and guidelines but is not covered by NRSRO regulations. http://www.jcrer.com.tr 1. Rating Rationale With respect to the adoption of TFRS 9 as of January 1,2018, the figures are not comparable across the years and Maintenance of Loan-Driven Moderate Growth FY2018-19 comparable figures include only Stage-3 Strategy Accompanied by Defending Margins coverage based on the 12-month expected credit losses (ECL) approach. Nurol Bank experienced robust growth performance through almost all principal banking segments in FY2020. It should be noted that the differentiation among banks The growth in assets and loans were 32.92% and 43.20%, with regard to staging with the introduction of the expected respectively regarding IFRS based financials and loss principle instead of the incurred loss through IFRS 9 / underperformed the averages of the Turkish Banking TFRS 9, which allow considerable room for judgement, has Sector (36.00% and 34.70%) and Turkish Development widened due the distinct approaches adopted by the banks and Investment Banking Sector (28.28% and 24.55%) both in qualitative assessments and quantitative ones as sectors. The Bank's strategy is to create a diversified well, particularly in the SICR (Significant Increase in Credit corporate loan book targeting high-quality. The graph Risk) definition. below presents the growth of the Bank’s cumulative asset The Bank has provisions for Stage-3 and Stage 1-2 of growth rate in comparison with the sector. TRY72.53mn and TRY25.55 as of FY2020, respectively. Turkish Banking Sector Turkish Investment Banks Nurol Yatırım Bankası A.Ş. Turkish Investment Banks Nurol Yatırım Bankası A.Ş. Turkish Banking Sector Annual Asset Growth Rates % Impaired Loans / Equity % 40 70 35 63.24 59.01 60 30 44.81 50 35.98 25 47.04 40 33.88 20 22.37 33.15 30 22.54 15 17.49 28.28 20 15.84 19.29 18.70 10 5.31 5.31 16.15 10 5.67 4.35 4.35 19.35 19.35 17.84 22.94 30.49 34.90 25.33 26.11 2.28 2.28 1.28 2.40 2.40 0.01 0.01 5 0 0.02 2016 2017 2018 2019 2020 0 2016 2017 2018 2019 2020 Cumulative asset-based growth performance of the Nurol Bank remained above the average growth performance of The Bank’s gross NPL volume stood atTRY86.22mn in the Turkish Development and Investment Banking Sector FYE2020 (FYE2019: TRY161.61mn.). With the decrease since 2016, except 2020. in overdue loans, that of the loan receivables decreased in the NPLs ratio to 5.12% as of FYE2020 from 7.32% as of The continuation of financial markets, the healthy FYE2019 due to recovery, collection and other functioning of credit channels and the companies' cash transactions as of FYE2020. The ratio exceeded the flow had paramount importance to limit the negative averages for both the Turkish Banking Sector and Turkish impacts of Covid-19 pandemic on the Turkish economy. Development and Investment Banking Sector since 2018. Interest rates have fallen sharply by the first and second Non-performing loans amounting to TRY44.4mn has been quarters of 2020. Although interest rate rose sharply during written off by the Bank during 2018. 2Q2020 and 3Q2020, interest rates remained low throughout the year which led to loan growth to support Nurol Yatırım Bankası A.Ş. Turkish Investment Banks consumers’ lagged needs and companies’ working capital Turkish Banking Sector needs. NPLs % 8 7 6 The Collection of Overdue and Non-Performing 5 Loans Supporting Asset Quality of 2020 4 3 As of FYE2020, the Bank’s loans loss reserves to impaired 2 1.11 1.11 1.13 0.83 0.83 3.23 3.23 2.95 3.86 5.33 4.07 0.59 0.59 0.00 0.55 0.00 0.23 7.32 loans ratio was 84.12% and increased from 16.97% as of 5.12 1 FYE2019.