Credit Rating

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1. Rating

The notations discussed in this document are used in small, medium and large-scale industrial and commercial companies, corporate companies, local administrations, and public institutions. Notations are also used for asset backed bond and securities issued in national or international markets by countries, banking, insurance or other financial institutions. Ratings related to special cases or specific programs, on the other hand, consider the relative priority of issuers and/or borrowers and determine the terms, conditions, and undertakings associated to the security/loan. Credit ratings are the expression of the probability of repayment of the investments made and/or the debts provided for all parties that lend and invest, and determine the general creditworthiness of the applied institution and organization. Credit ratings are divided into "Investment Grade", "Speculative" or "Default" categories according to the level of default probabilities.

Credit ratings are forward-looking statements about a company's relative ability to meet its financial commitments and liabilities on a timely basis.

The rating scale assigned to companies and issues is expressed using the categories 'AAA' to 'BBB' (Investment Grade), 'BB' to 'C' (Speculative) and 'D' (Default) and plus (+) and minus (-) signs are used to make the relative distinction between AA and CCC categories in more detail. The terms "Investment Grade", "Speculative" and "Default" do not suggest that a particular investment security is recommended or endorsed. “Investment Grade” ratings indicate relatively low to moderate credit risk, ratings in the “Speculative” categories indicate a higher level of credit risk, “Default” indicates that a default situation has already occurred partially or completely. Ratings provide a common and transparent global language for investors to form and compare their relative probabilities of whether a company or issuer will be able to repay their debts in full and on time. Ratings are just one of many inputs that investors and other market participants can consider as part of their decision-making processes.

Other than credit risk, ratings do not explicitly address any other risk. The risk of market value loss owing to changes in interest rates, liquidity, and/or other market assessments is not addressed by ratings. However, Market risk can be measured in terms of how it affects the issuer's ability to pay or refinance a financial commitment.

Long term national ratings serve as the starting point for corporate and issue ratings in the JCR ER methodology. In this context, the rating scale used by JCR ER and the explanations of the ratings are given in the table below.

Table : Rating Scale

Investment Level	Rating	Rating Group	Credit Quality	Remarks
Investment Grade	AAA	AAA	Highest Credit Quality	Indicates the lowest level of default risk expectation. It is given in exceptional cases where there is very strong capacity to meet financial liabilities. This capacity is unlikely to be adversely affected by foreseeable events.
	AA+	AA	Very High Credit Quality	Indicates the very low level of default risk expectation. It is given in exceptional cases where there is very strong capacity to meet financial liabilities. This capacity has significant resistance to foreseeable events.
	AA
	AA-
	A+	A	High Credit Quality	Indicates expectations of low default risk. The capacity for payment of financial liabilities is considered strong. Nonetheless, this capacity may be more vulnerable to adverse business or economic conditions than higher ratings.
	A
	A-
	BBB+	BBB	Good Credit Quality	Indicates that the default risk expectation is currently low. The ability to pay for financial obligations is considered adequate, but adverse business or economic conditions are more likely to impair solvency
	BBB
	BBB-
Speculative	BB+	BB	Speculative	Indicates an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time. However, there is commercial or financial flexibility that supports the fulfillment of financial liabilities.
	BB
	BB-
	B+	B	Highly Speculative	Indicates that there is a considerable risk of default, and there is only a limited margin of safety. Despite the current fulfillment of financial liabilities, its ability to pay is vulnerable to deterioration in commercial and economic conditions.
	B
	B-
	CCC	CCC	Substantial Credit Risk	Very low margin for security. Default is a strong possibility.
	CC	CC	Very High Level of Credit Risk	Default is a very strong possibility now.
	C	C	Near Default	Bankruptcy or a similar legal process has begun, activities have come to a standstill. The payment capacity is irreversibly impaired.
Default	prD	prD	Partial Default	Indicates an issuer that has failed to meet a portion of any bond, loan, or other material financial liabilities, but has not filed for bankruptcy or other formal liquidation. Its activities have not stopped yet.
Default	D	D	Default	Unable to fully meet its financial liabilities, stopped actions and bankruptcy process has started

2. Ratings by Maturity

Short term credit ratings include evaluations for periods of up to one year, whilst long term credit ratings include assessments for the medium and long term over one year. Institutions and securities rated AAA, AA, A, BBB in the long term and J1+, J1, J2 in the short term should be considered "investment grade" by the market.

JCR ER separates the ratings into long term and short term ratings, with each using a distinct rating symbol. Long term ratings are used for liabilities with a maturity of more than one year, while short term ratings are used for liabilities with a maturity of less than one year.

Long term ratings indicate the likelihood of meeting medium and long term liabilities, and short term ratings indicate the likelihood of meeting short term liabilities within a year. Short-term credit rating, on the other hand, cannot be totally isolated from medium and long-term credit rating. A view that predicts the borrower's confidence in meeting its medium and long term liabilities, for example, would have a considerable impact on short term finance, as it directly affects the borrower's relationship with customers and banks.

Therefore, when determining short-term ratings, the JCR ER creates a long-term view of the borrower's conditions and business environment, just like a long-term rating. The assessment of medium and long-term credit rating therefore forms the basis of JCR ER's short-term rating. As a result, as indicated in the notation table below, there is a significant degree of congruence between short term and long term evaluations.

Differentiation from this matching, which constitutes the first reference point, is formed by adding the liquidity profile to be formed in the short term.

Table : Matching of Long Term-Short Term Rating

Long Term	Short Term
AAA	J1+
AA+	J1+
AA	J1+
AA-	J1+
A+	J1+	J1
A		J1
A-		J1	J2
BBB+			J2
BBB			J2
BBB-			J2	J3
BB+				J3
BB				J3
BB-				J3	J4
B+					J4
B					J4
B-					J4
CCC					J5
CC					J5
C					J5
prD					prD
D					D

As of 14.02.2022, the short-term rating notations have been revised, and the comparison of old and new notation is given below.

Ex Notation	Revised Notation
A1+	J1+
A1	J1
A2	J2
A3	J3
B	J4
C	J5
D	D

3.Ratings by Currency

International Foreign Currency Rating: The institutions' ability to meet its foreign currency liabilities by generating foreign currency is evaluated. All country risks, including convertibility and transfer risk, are considered.

International Local Currency Rating: The institution's ability to meet its liabilities through generating local currency, regardless of currency, is assessed according to international standards. All country risks are considered, except for convertibility and transfer risks.

International Local Currency Rating: The institution's ability to meet its liabilities through generating local currency, regardless of currency, is assessed using international standards. Country risks aren't taken into consideration.

JCR ER makes use of the matching table of national ratings assigned to international ratings while assigning ratings on an international scale. The table in question has a dynamic structure that is determined by the country's rating or the country ceiling. The matching table currently used is given below.

Table : National-International Rating

National	International
AAA (tr)	BB
AA+ (tr)	BB
AA (tr)	BB
AA- (tr)	BB
A+ (tr)	BB
A (tr)	BB
A- (tr)	BB
BBB+ (tr)	BB
BBB (tr)	BB
BBB- (tr)	BB-
BB+ (tr)	B+
BB (tr)	B+
BB- (tr)	B
B+ (tr)	CCC
B (tr)	CCC
B- (tr)	CCC
CCC (tr)	CC
CC (tr)	C
C (tr)	C
prD (tr)	prD
D (tr)	D

The ratings that form the basis for determining the highest value of the international grades to be matched with the national ratings can be the country rating assigned by the JCR (Japan) rating agency for Türkiye, or the "country ceiling" value that can be related to the international rating that JCR ER can assign itself, but can be at a different level.

Although the matching table is the first application phase, the international rating of the companies may be higher than the ratings determined for the international ceiling in this table as a result of the evaluation of some unusual and exceptional instances. These situations and assessment criteria may include, but are not limited to, the following examples: the presence of the dominant foreign partner in the partnership structure (in terms of shares or effective votes) and the credibility level of the country where the ultimate partner of this foreign partner is located, if any, the credibility level of the ultimate partner of the foreign partner, the existence of a foreign partner who does not dominate the partnership structure (in terms of shares or effective votes) but has more than 20% of the shares, and the possibility that this partner can continue its activities with another partner or independently in the absence of the other local partner, whether there is credit insurance in its activities in high country risk regions abroad and/or whether there is a joint venture with strong international institutions, organizations and companies, mechanisms created specifically for the company to protect itself from this in the scenarios of the country-based turnover distribution of its domestic and foreign operations, the weighted credit worthiness of the countries in which it operates, and the scenarios of difficulties in country debt repayment, evaluation of protected foreign exchange position abroad, etc.

The national ratings include an abbreviated (tr) phrase for Türkiye, although this term is not included in the international ratings. For other country national ratings, ISO 3166-1 Alpha-2 country codes of the relevant country are used by JCR ER.

4.Outlook Assessment

The short- and long-term outlook for ratings is JCR ER's outlook of the potential direction or solvency of a firm's rating within one or two years, respectively, after the rating is determined.

In the formation of this opinion, expected future financial conditions and the effects of current changes, evaluations for the future of the debtor, plans for capital expenditures and financing; management plans, sector trends and the effects of current changes, opinions based on estimations of future financial statements, future trend of management, general macroeconomic and sector-specific conditions and trends, the effects of current changes, changes in environmental, social, demographic, technological and legislative systems, changes that could significantly affect the positioning of the company within the sector, etc. are taken into account.

The Ranking outlook is divided into 4 categories: Positive, Stable, Negative and Developing.

Positive outlook means that a rating is likely to be raised. Negative outlook means it is likely to be decreased. Stable outlook means that a rating is unlikely to change in the near future. Developing outlook means that a rating can be raised, decreased or affirmed.

The fact that the rating outlook for a credit rating is Positive, Negative or Developing does not necessarily mean that the credit rating will change, just as the credit rating can be changed without changing the outlook beforehand, even in cases where the rating outlook is Stable.