S&P raises Nurbank (Kazakhstan) ratings; outlook Stable
January 23. KASE
Standard & Poor’s Ratings Services today raised its long- and short-term counterparty credit ratings on Kazakhstan-based financial institution, Nurbank, to ‘B/B’ from ‘B-/C’ and its Kazakhstan national scale rating to ‘kzBB+’ from ‘kzBB-‘. The outlook is stable.
The upgrade reflects our view that Nurbank’s capital position has strengthened following the November 2012 sale of Kazakhstani tenge (KZT) 47.3 billion of problem loans to third-party collection companies in a true sale without recourse. We view this transaction-the aggregated profit and loss impact of which was marginal-as similar to a capital increase.
We understand that the bank is planning another KZT24.2 billion sale in the first quarter of 2013. We expect the two sales combined-which represented about one-quarter of Nurbank’s total loan portfolio at Sept. 30, 2012-will materially reduce Nurbank’s large stock of nonperforming loans (NPLs) and problem loans. In our view, NPLs will likely reduce to around 25% of the bank’s total loan portfolio at year-end 2013 from 36% at Sept. 30, 2012. Apart from the two sales, the more-dynamic generation of new business than seen in the previous three years will also likely improve the bank’s profitability and asset quality.
Before both sales were announced, we had expected Nurbank’s Standard & Poor’s risk-adjusted capital (RAC) ratio would weaken because of the bank’s need to create significant additional provisions on its problem loans. The sale of problem loans has enabled Nurbank to significantly reduce its risk-weighted assets, which we calculate using our RAC framework methodology, and to maintain its capital base. Therefore, we now expect that Nurbank’s RAC ratio before diversification will have strengthened significantly year-on-year at end-2012 and will stay comfortably above 10% in the next 24 months. Our forecast assumes that Nurbank’s main shareholder will remain fully committed to the bank and would either inject fresh capital or initiate further sales of problem assets, if required, to maintain capitalization at current levels.
We have raised the short-term rating to ‘B’ from ‘C’ to reflect our view of reduced pressure on Nurbank’s funding and liquidity position and the bank’s ability to maintain stable deposit-based funding, with no significant wholesale repayments, over the forecast horizon.
Our ratings on Nurbank reflect our assessment of its ‘bb-‘ anchor, the starting point in assigning an issuer credit rating, as well as its “moderate” business position, “strong” capital and earnings, “weak” risk position, “average” funding and “adequate” liquidity, as our criteria define these terms. Positive rating factors are its strengthened capitalization and stable deposit-based funding. Ratings weaknesses are its exposure to the risky construction and real estate sectors in Kazakhstan and its still-high share of NPLs and restructured loans, which is higher than the Kazakh banking sector average, excluding restructured banks.
The stable outlook reflects our expectation that the bank will maintain strong capitalization in the next 24 months and that its profitability and asset quality will gradually recover as new business is generated.
We are unlikely to raise the ratings again over the outlook horizon. To revise the bank’s risk position to “moderate” from “weak” we would need to see that its loan underwriting had strengthened and that loans generated over the past two years were performing better than the old stock of NPLs. We would also need to see a significant reduction in the proportion of loans to the high-risk real estate and construction sectors.
We could lower the ratings if, contrary to our expectations, the bank’s capitalization weakens such that our projected RAC ratio before adjustments for diversification declines below 10%. This could happen because of higher-than-expected planned loan expansion, the creation of significant additional provisions, or other material negative one-off items. An increase in NPLs-against our current expectation that asset quality will improve-could also lead us to lower the ratings.