Fitch affirms ratings of Subsidiary Organization JSC VTB Bank (Kazakhstan); outlook Stable

September 2. KASE

Fitch affirms ratings of Subsidiary Organization JSC VTB Bank (Kazakhstan); outlook StableFitch Ratings has affirmed Kazakhstan-based Subsidiary JSC VTB Bank’s (VTBK) Long-term foreign-currency Issuer Default Rating (IDR) at ‘BBB-‘ with a Stable Outlook. A full list of rating actions is at the end of this commentary.

VTBK’s ratings are driven by potential support from its sole shareholder, Russian state-owned bank VTB (‘BBB’/’bb’). The one-notch difference between the Long-term IDRs of VTBK and VTB reflects the cross-border nature of the parent-subsidiary relationship. In Fitch’s view, VTB would have a strong propensity to support VTBK given its ownership, the strategic importance of the Kazakh market for its regional development, VTBK’s very small relative size and VTB’s strong track record of supporting its subsidiaries, including VTBK.

VTBK effectively began operating in Q210, and the scope of its operations is still limited (loan book of USD0.1bn at end-H111). Underwriting standards have been reasonable to date, however, Fitch cannot rule out the possibility of them being loosened in the future given VTBK’s ambitious expansion plans (almost 10x loan book increase to end-2012). Unlike some of VTB’s other subsidiaries, VTBK has so far funded its lending operations in the local market, including through placements from local pension funds and insurance companies. However, parent funding may become more significant as VTBK expands.

VTBK has been loss making to date, and management only expects the bank to become profitable in 2013. Capital ratios are currently high (88% total capital ratio at end-H111), but likely to reduce to much lower levels as the loan book grows.

VTBK is a small bank focused on providing traditional commercial banking services to corporates, at the same time targeting mass-affluent customers on the retail side. In light of VTBK’s short track record and unseasoned business model, Fitch has not assigned it a Viability Rating.

The rating actions are as follows:

Long-term foreign currency IDR: affirmed at ‘BBB-‘; Stable Outlook

Long-term local currency IDR: affirmed at ‘BBB-‘; Stable Outlook

Short-term IDR: affirmed at ‘F3’

Support Rating: affirmed at ‘2’

National Rating: affirmed at ‘AA(kaz)’; Stable Outlook.