Moody’s upgrades BTA Bank (Kazakhstan) ratings

February 21. Moody’s Investors Service. London

Moody's upgrades BTA Bank (Kazakhstan) ratingsMoody’s Investors Service has today upgraded BTA Bank’s long-term local and foreign-currency deposit ratings to Caa1 from Caa2. Concurrently, Moody’s affirmed the bank’s E standalone bank financial strength rating (BFSR) and raised the corresponding baseline credit assessment (BCA) to caa3 from ca.

The rating actions follow BTA’s completion of its $11.2 billion market debt restructuring in December 2012, which is supportive of the bank’s credit fundamentals.

The outlook on the BFSR remains stable, whereas the outlook for the deposit ratings is developing.

RATINGS RATIONALE

– STANDALONE RATING

Under the debt restructuring completed in December 2012, Kazakhstan’s National Welfare Fund, Samruk-Kazyna, remains BTA’s majority shareholder with a 97% stake. The restructuring included the cancellation of existing debt, a  debt-to-equity conversion as well as the issuance of longer-maturity bonds. These aspects had the following credit-positive effects on BTA’s key financial metrics (1) equity was restored to $1.4 billion at year-end 2012 from a $8 billion  deficit at end-H1 2012, resulting in an Equity-to-Assets ratio of 13.8% at year- end 2012, according to the bank’s regulatory reports and; (2) total liabilities  were halved to $8.7 billion (including foreign-market borrowings of around $1  billion) at year-end 2012, from $17.9 billion at end-H1 2012. As a result the  bank’s operating losses are expected to decline substantially in 2013, owing to  over $300 million of annual savings from the reduced debt burden and  improved revenue due to support from the government through a higher interest rate on the Samruk-Kazyna bonds held by BTA.

Current level of loan loss reserves will likely be sufficient to absorb expected losses from problem loans estimated at 75% of total loans. The recovery of some of the problem loans may also support BTA’s financial metrics. However, significant uncertainty remains as to the sustainability of the bank as an ongoing concern. Despite the expected positive effects of the restructuring on the bank’s performance, Moody’s expects that BTA will report substantial losses at least over the next two years stemming from weak operating results and loan loss provisions for newly underwritten loans. These losses and rising level of risk assets could considerably erode BTA’s capitalisation. Therefore the  need for additional emergency support remains elevated.

– DEPOSIT RATINGS

Moody’s incorporates a moderate systemic support probability into BTA’s deposit ratings due to the bank’s significant market share in the Kazakh banking system and its government ownership. As a result, BTA’s Caa1 deposit ratings receive two-notches of uplift from its caa3 BCA.

Moody’s understands that BTA may be privatised by the end of 2013, as instructed by Kazakhstan’s President Nazarbayev in early February. Privatisation could have either positive or negative effects on BTA’s deposit ratings, depending on the profile and financial strength of the potential buyer. Consequently, the deposit ratings carry a developing outlook, which indicates that the ratings could either be upgraded or downgraded over the next 12 to 18 months.

WHAT COULD MOVE THE RATINGS UP/DOWN

Upwards pressure might develop on BTA’s standalone and deposit ratings if the bank restores its operating profitability and improves its liquidity.

Downwards pressure might develop on BTA’s standalone and deposit ratings if the bank’s losses significantly weaken its capital or its liquidity cushion deteriorates notably.

Headquartered in Almaty, Kazakhstan, BTA reported total assets and equity of $10.07 billion and $1.39 billion, respectively, as at year-end 2012 according to the bank’s regulatory financial statements.

http://www.kase.kz/en

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