Moody’s changes outlook on Kaspi Bank long-term deposit ratings from Negative to Stable
June 14. KASE
Moody’s Investors Service has today changed to stable from negative the outlook on the B1 long-term foreign and local currency deposit ratings of Kaspi Bank. The standalone bank financial strength rating (BFSR) of E+ and Not-Prime short-term local and foreign currency deposit ratings were affirmed.
Moody’s assessment is based on Kaspi Bank’s audited financial statements for 2011 (prepared under IFRS) and unaudited interim statements for Q1 2012 (under IFRS).
According to Moody’s, the outlook change to stable from negative is driven by Kaspi Bank’s (i) strengthened retail lending franchise, (ii) improved revenue generation; and (iii) stabilising asset quality and capital adequacy.
Moody’s has observed significant development of Kaspi Bank’s retail franchise in recent years. Kaspi Bank’s domestic market share in retail lending (as a proportion of total loans) grew to 8% as of YE2011, from 3.5% as of YE2009. The retail franchise was supported by expansion of the branch network and other distribution channels. Further development in this segment remains Kaspi Bank’s strategic priority going forward.
Moody’s notes that Kaspi Bank’s increased revenues – stemming from the high-yield retail segment – has strengthened the bank’s internal capital generation capacity, with return on average equity (RoAE) rising to 19% in 2011 from 5% in 2010. This increase enabled the bank to continue its loan growth strategy (the volume of gross loans grew by 25% in 2011) without threatening its capital (the Tier 1 ratio stood at 14.1% as of YE2011).
Moody’s believes that Kaspi Bank’s asset quality and capital adequacy is stabilising. Problem loans amounted to 17.9% of total loan book as of YE2011 (2010: 14.9%) with the major portion attributable to corporate and SME loans; and the problem loans were sufficiently covered by loan loss reserves (accounted for 15.7% of total loans as at YE2011). Although Moody’s expects further deterioration of Kaspi Bank’s corporate portfolio, the ultimate impact on capital will be limited due to healthy retail lending revenues.
Moody’s explains that any material adverse changes in Kaspi Bank’s risk profile – particularly any significant weakening of the bank’s liquidity position or deterioration of its asset quality together with an inability to maintain capital base – would exert negative pressure on the bank’s ratings. Conversely, any possible upgrade of Kaspi Bank’s ratings will be contingent on the bank’s ability to materially reduce its borrower and depositor concentrations, further develop its franchise, while also demonstrating a sustained track record of improvement in financial fundamentals.