JCR Eurasia Rating, In its periodical review process of Devir Faktoring A.Ş. and Its Bond Issues, has affirmed the Long Term National Note at ‘A-(Trk)’, the Short Term National Note at ‘A-1(Trk)’ while affirming ‘BBB-’ for its Long Term International FC

JCR Eurasia Rating,

In its periodical review process of

Devir Faktoring A.Ş. and Its Bond Issues,

has affirmed the Long Term National Note at ‘A-(Trk)’, the Short Term National Note at ‘A-1(Trk)’

while affirming ‘BBB-’ for its Long Term International FC and LC ratings as well with ‘Stable’ outlooks for all notes

JCR Eurasia Rating, by assessing “Devir Faktoring A.Ş.” within the investment grade category in its periodical review process, has affirmed the Long Term National Note at ‘A-(Trk)’, the Short Term National Note at ‘A-1(Trk)’ while affirming ‘Stable’ outlooks for all notes. On the other hand, the Long Term International Foreign and Local Currency ratings were also affirmed at ‘BBB-’. Other notes and details of the ratings are given in the table below:

Long Term International Foreign Currency

:

BBB- /(Stable Outlook)

Long Term International Local Currency

:

BBB- /(Stable Outlook)

Long Term National Local Rating

:

A- (Trk) /(Stable Outlook)

Long Term Issue Rating

:

A- (Trk)

Short Term International Foreign Currency

:

A-3 /(Stable Outlook)

Short Term International Local Currency

:

A-3 /(Stable Outlook)

Short Term National Local Rating

:

A-1 (Trk)/(Stable Outlook)

Short Term Issue Rating

:

A-1 (Trk)

Sponsor Support

:

2

Stand Alone

:

B

The Factoring Sector is marked by high level of vulnerability to fluctuations in macroeconomic circumstances and instability. Management policies in the sector are strongly influenced by the changes in economic outlook and regulatory procedures from the Banking Regulation and Supervision Agency (BRSA). On the other hand, in line with the undertaken reforms, the sector’s legal infrastructure has been improved with regards to effective surveillance and control. As such, the mandatory installation of information, risk measurement, and internal control systems have made a positive contribution to the improvement of the sector’s institutional set-up, and the quality, standardization, and transparency of financial reporting practices and facilitated fair competition. The Sector has become an important stakeholder in the economy through its strengthened legal framework, short-term receivables structure of commercial activities, and increasing liquidity management needs of the market. The improved representation capacities of sector firms through recent legal regulations and the developed cooperation between factoring companies and the Turkish Export Import Bank (Eximbank) to support exporters are important indicators of the sector’s continuing growth trend. Considering the fact that factoring companies generate revenues mainly from real sector firms, the probable adversities on the factoring sector of the market volatility and low-growth environment deriving from domestic/overseas economic, political and geopolitical developments serve as an issue that should be monitored closely.

Devir Faktoring A.Ş., as one of the first institutions operating in the Turkish Factoring sector with its activities dating back to 1991, has outperformed the sector averages in cumulative growth terms since 2011 by changing its strategy with a view to expand its client base under highly competitive circumstances in the domestic market. However, considering the developments in the markets in general and the factoring sector in particular, the Company management is expected to stick to a strategy in the periods to come with emphasis on maintaining its prudent and planned growth structure through ensuring sustainable profitability with deliberate management stance.

Sustainability through moderate risk profile, stability of management and prudent stance, net interest margin continuing to perform well above the sector, main profitability indicators improving further and reversing to an above-sector-average pattern, the fact that Devir Faktoring sustains NPL ratios below the averages without any sale of or transfer of its NPLs in contrast to implementations in the sector having become a noteworthy feature despite notable inflow and narrowing gap with the sector, and moderate concentration levels improved particularly on client basis against such impediments as upside risks of weakened TL and downside risks to growth affecting profit margins and debt-servicing capabilities of the real sector, widening interest rate exposure through increasing share of floating rate financial debts, high OPEX level – though tolerated with a view to minimizing risks within the framework of its risk appetite policy and the said prudent policies providing support for maintenance of its activities with below-sector NPL level - albeit mitigated to an extent by lowered risk profile through intentional continuation of its scale, and short term borrowing profile of the sector were effective in the affirmation of the ratings on the Short and Long Term National scales.

Level of profitability considering size of its contribution to internal equity generation capacity, development of NPL level in view of current sectorial deterioration, liquidity profile with regard to available lines and external funding sources, possible improvement in implementation phase of already taken decisions with a view to enhancing the corporate governance compliance level and results of the planned bond issue on the Company’s financial statements will be the monitoring issues for further assessments in the following periods. On the other hand, the possible effects on the Company of the risk and opportunities to arise out of restructuring process of the organs of the state following the failed coup attempt will continue to be monitored.

JCR Eurasia Rating is of the opinion that the Company’s ultimate shareholder, the Levi Family, with executive functions of some of them in the management, has the adequate experience to provide efficient operational support and have the willingness and adequate propensity to provide financial assistance as indicated by the capital support by the shareholders before to meet the minimum regulatory requirements. Moreover, enactment of Takasbank Money Market Procedure in 2015 entitling the Leasing, Factoring and Finance Companies to become members of the Takasbank Money Market is expected to provide the factoring companies in Turkey with access to alternative funding channels and to improve systemic support level. Within this context, JCR Eurasia Rating has affirmed the Sponsor Support note of (2) for Devir Faktoring.

On the other hand, it is believed that Devir Faktoring has adequate experience and facilities to manage its obligations, notwithstanding that the shareholders do not provide any financial assistance, provided that the trend to enhance its current client portfolio and efficiency in the market is sustained and accompanying risk management practices to be supported by sustainability attained partly thanks to moderate risk profile and prudent managerial stance are maintained. Within this context, the Stand Alone note of Devir Faktoring has been affirmed at (B) under JCR Eurasia Rating notation system.

For more information regarding the rating results you may visit our internet site http://www.jcrer.com.tr or contact our analyst Mr. Zeki M COKTAN.

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