Fitch upgrades ratings of Halyk Savings Bank of Kazakhstan, affirms those of Kazkommertsbank, ATFBank, Bank CenterCredit and Kaspi Bank
April 25. KASE
Fitch Ratings has upgraded the Long-Term Issuer Default Ratings (IDRs) of Halyk Bank of Kazakhstan to ‘BB-‘ from ‘B+’ and affirmed the IDRs of four other Kazakh banks, namely Kazkommertsbank (KKB), ATF Bank, Bank Centercredit (BCC) and Kaspi Bank. At the same time, Fitch has affirmed the ratings of the Russian subsidiaries of BCC and KKB. A full rating breakdown is provided at the end of this comment.
The ratings actions reflect Fitch’s view that downside risks for Kazakh banks have been reduced following the marked improvement in the macroeconomic environment. Fitch notes evidence of stabilisation in key credit metrics in recent months, including an easing in reported arrears growth and stabilisation in lending volumes. There are also signs of a bottoming out in the real estate market, with numbers of sales increasing slowly. Furthermore, banks continue to benefit from the abundant liquidity in the sector, growing deposit bases and markedly reduced debt repayment burdens.
At the same time, nonperforming loans (NPLs) remain stubbornly high at all banks, and uncertainty remains over banks’ asset values and appropriate provisioning levels, representing the main rating constraint. Fitch does not expect NPLs to ease any time soon. Genuine work-outs have been rare and loan restructurings still dominate management agendas. That said, Fitch believes there to be forces which should help to push arrears rates down in the coming months. Borrowers should benefit from the improved operating environment and numerous government initiatives aimed at recapitalisation of the corporate sector (e.g. interest rate subsidies, tax relief). Outside the government programmes, a key to recovery will be an improvement in real estate/asset values, which Fitch believes will in turn be contingent on resumption of credit growth.
The upgrade of Halyk to ‘BB-‘ reflects Fitch’s view that any further increase in NPL recognition in the current loan portfolio should be manageable given the bank’s significant loss absorption capacity. The bank’s ratings also continue to be supported by its better that peers’ pre-impairment profitability, more stable funding base and strong liquidity position. Reported NPLs have stabilised since Q210 and are well covered by reserves, while the tier 1 capital ratio should remain at around 15% even after the recent share buy-back.
KKB’s ‘B-‘ Long-term IDRs continue to be constrained by the persisting uncertainty surrounding the value of its loan book, its potential need for new capital and the readiness of shareholders and/or the Kazakh authorities to recapitalise the bank, in the event it is required. However, Fitch has upgraded KKB’s Individual Rating to ‘D/E’ from ‘E’, following strong deposit inflows, some chunky loan repayments in recent months and the bank’s improved liquidity position. Continuous debt redemptions by KKB are also an important rating positive.
Fitch has also revised the Support Rating Floors of Halyk (to ‘B’) and KKB (to ‘B-). These actions acknowledge the track record of (moderate) funding and capital support provided to these banks by the authorities during the crisis. Halyk’s Support Rating Floor is set one notch higher than KKB’s, reflecting the former’s wider retail deposit franchise, limited wholesale funding and strong political connections.
At the same time, the Support Rating Floors remain a large five-six notches lower than the sovereign foreign currency Long-Term IDR of ‘BBB-‘. This reflects the readiness of the authorities to let other leading Kazakh banks default during the recent crisis, and public statements in support of the principle of ‘burden sharing’ in case of bank insolvencies.
ATF Bank’s (ATF) ‘BBB’ Long-Term IDR is driven by potential support from its ultimate parent UniCredit S.p.A. (UC; rated ‘A’/Stable Outlook). Although there are some doubts about UC’s long-term strategic commitment to the Kazakh market, Fitch believes a sale of ATF is unlikely in the near term, and expects UC to continue supporting the subsidiary as long as it remains the major shareholder.
ATF’s ‘D/E’ Individual Rating reflects weak asset quality, undermining the bank’s profitability and capitalization, and the concentrated nature of the balance sheet. However, downside risks are limited as a result of credit protection purchased from the broader UC group on 44% of the loan book.
BCC’s credit profile, as reflected in its ‘B’ Long-Term IDR, is significantly undermined by its weak profitability prospects connected with very narrow margins and the potential need to create additional loan loss reserves. The net interest margin on a cash basis (i.e. net of accrued interest) was negative in 2010, affected by the significant share of non-performing assets and negative carry from excess liquidity.
BCC continued to recognize problems in previously restructured exposures in 2010, resulting in a large net loss for the year, and further recognition is likely in 2011, in Fitch’s view, which could put further pressure on capital. On the positive side, BCC has a strong deposit base and comfortably sufficient liquidity to meet near- to medium-term debt repayments.
The affirmation of Kaspi’s ‘B-‘ Long-Term IDR consider sizable single-name concentrations in loans and deposits, and potential additional loan provisioning requirements, which could put pressure on capital. However, the growing retail deposit franchise is a balance sheet strength. In addition, Kaspi’s focus on higher-rate retail lending, where it has a reasonable track record, should help it to offset broader margin pressure in the sector.
Long-Term foreign and local currency IDRs affirmed at ‘B-‘, Outlook Stable; – Short-Term foreign and local currency IDRs affirmed at ‘B’; -Support Rating affirmed at ‘5’; -Individual Rating upgraded to ‘D/E’ from ‘E’; -Support Rating Floor revised to ‘B-‘ from ‘No floor’; -Senior unsecured debt affirmed at ‘B-‘, Recovery Rating ‘RR4’ – Senior unsecured debt programme short-term rating: affirmed at ‘B’; -Subordinated debt affirmed at ‘CC’, Recovery Rating ‘RR6’; – Tier 1 perpetual subordinated notes affirmed at ‘CC’, Recovery Rating ‘RR6’.
Long-Term foreign and local currency IDRs affirmed at ‘BBB’, Outlook Positive; -Short-Term foreign currency IDR affirmed at ‘F3’ -Senior unsecured debt affirmed at ‘BBB’; -Subordinated debt affirmed at ‘BBB-‘; -Support Rating affirmed at ‘2’; -Individual Rating affirmed at ‘D/E’; -National Long-Term rating affirmed at ‘AAA(kaz)’, Outlook Stable; -National senior unsecured debt rating affirmed at ‘AAA(kaz)’; -National subordinated debt affirmed at AA+(kaz)’.
Halyk Bank of Kazakhstan: -Long-Term foreign and local currency IDRs: upgraded to ‘BB-‘ from ‘B+’; Outlook Stable -Short-Term foreign and local currency IDRs affirmed at ‘B’; -Senior unsecured debt upgraded to ‘BB-‘ from B+’, Recovery Rating ‘RR4’ affirmed and withdrawn. -Support Rating upgraded to ‘4’ from ‘5’; -Individual Rating upgraded to ‘D’ from ‘D/E’; -Support Rating Floor revised to ‘B’ from ‘No floor’.
Bank CenterCredit: -Long-Term foreign currency IDR affirmed at ‘B’, Outlook Stable; -Short-Term foreign currency IDR affirmed at ‘B’; -Senior unsecured debt affirmed at ‘B’, Recovery Rating at ‘RR4’. -Support Rating affirmed at ‘5’; – Individual Rating affirmed at ‘D/E’.
-Long-Term foreign currency IDR affirmed at ‘B-‘, Outlook Stable; -Short-Term foreign currency IDRs affirmed at ‘B’; -Individual Rating affirmed at ‘D/E’; -Support Rating affirmed at ‘5’; -Support rating floor affirmed at ‘No Floor’.
CB Moskommertsbank: -Long-Term foreign currency IDR affirmed at ‘B-‘, Outlook Stable; -Short-Term foreign currency IDR affirmed at ‘B’; -National Long-Term rating affirmed at ‘BB-(rus)’, Outlook Stable; -Individual Rating affirmed at ‘E’; -Support Rating affirmed at ‘5’.
Long-Term foreign currency IDR affirmed at “B”, Outlook Stable
Short-Term foreign currency IDR affirmed at “B”
National long-term rating affirmed at “BBB-(rus)”
Support Rating affirmed at “4”.