Moody's Investors Service said on April 4 that it had placed ratings of state-owned lender Halkbank on review for downgrade following the arrest of one of the bank’s deputy CEOs in the US last month on charges of conspiring with a Turkish-Iranian gold trader to help Iran evade sanctions.

The review applies to Halkbank's long-term foreign currency senior unsecured debt and long-term local currency deposit ratings (Ba1) and long-term foreign currency deposit rating (Ba2).

The bank's ba2 standalone Baseline Credit Assessment (BCA) was also placed on review for downgrade.

Halkbank rejects the charges against its senior executive.

The review will focus on the potential implications on Halkbank's financial fundamentals of the US authorities' investigation related to alleged transactions with prohibited parties, Moody’s said in a statement, adding that limited public information is available on the investigation at present.

“In this context, the review will focus on the extent to which the investigation may impact bank-specific investor and counterparty confidence, thereby affecting the cost of market funding for Halkbank or potentially limiting access to wholesale markets on which the bank relies,” Moody's said.

The review will assess changes in the growth potential of the bank's business activities and profitability, and evaluate the degree to which the investigation may be focused on the bank itself, the rating agency said.

Given the challenging operating environment in Turkey, the legal risk may put additional pressure on Halkbank's financial fundamentals, according to Moody’s.

“The review will also take into account any further evidence of the government's willingness to provide support in case of need for the bank. Currently, Moody's assumes a very high probability of support for this majority government-owned bank, resulting in a one notch uplift for the long-term local-currency deposit rating (Ba1), from the bank's (ba2) standalone BCA,” the rating agency said.