Sustained letter of credit (L/C) business with Libya is one reason given by Fitch Ratings why it has affirmed Arap Turk Bankasi's (ATB's) long-term local and foreign currency issuer default ratings at 'B+' with a negative outlook.

But the ratings agency says a lack of investor confidence in Libya could lead to a deterioration in the bank's letter of guarantee (L/G) business.

Niche market

Fitch says the rating reflects the bank's limited exposure to the volatile Turkish market and its niche business of providing short-term trade finance in the high-risk Middle East and North Africa region.

The ratings also take account of ATB's reliance on parent funding from its majority shareholder, Libyan Foreign Bank and affiliated entities.

L/Cs and guarantees

Transactions with Libya, although high risk, have performed well over time. These mainly include L/Gs and export L/Cs according to Fitch.

It says a high proportion of these are mitigated by counter-guarantees from large Turkish banks and corporates.

But the ratings agency warns that the cancellation of L/Gs provided in relation to clients' projects in Libya could weaken the bank's franchise.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.