S&P affirms Kazakh Kassa Nova Bank’s ratings

Dec. 19. Trend

S&P affirms Kazakh Kassa Nova Bank’s ratingsStandard & Poor’s Ratings Services said today that it had affirmed its ‘B’ long-term and ‘C’ short-term counterparty credit ratings and ‘kzBB’ Kazakhstan national scale rating on Kassa Nova Bank JSC. The outlook is stable, S&P said today.

“The affirmation reflects S&P view that Kassa Nova’s stand-alone credit profile (SACP) and factors for the long-term rating remain largely unchanged,” S&P said. “This is because, although capitalization has weakened because the rapid growth in its loan book has not been supported by capital injections as S&P had expected, the bank has strengthened and diversified its funding and liquidity profile.”

S&P sees two opposite dynamics affecting the SACP: weakening of the bank’s capital position in 2013 and S&P forecast for lower risk-adjusted capital (RAC) for the next 18 months; versus an improvement in the funding profile in 2013.

S&P revised capital and earnings assessment on Kassa Nova to “strong” from “very strong,” and assessment of its funding and liquidity to “average” from “below average,” as defined in criteria.

S&P ratings on Kassa Nova Bank reflect its anchor of ‘bb-‘, as well as its “weak” business position, “strong” capital and earnings, “moderate” risk position, “average” funding, and “adequate” liquidity, as criteria define these terms.

The stable outlook reflects S&P expectation that Kassa Nova has sufficient capital to absorb what S&P expects to be slower asset growth over the next 12 months and S&P expectation of some asset quality deterioration as the loan portfolio matures.

S&P could lower the ratings if capitalization weakens further than S&P anticipates, resulting in S&P projected RAC ratio decreasing below 10%. This can happen if the bank continues its rapid loan growth much above S&P expectation of about 10% per year or if the bank had to create significant additional provisions, which would negatively affect the earnings contribution to its capital base.

Inability to keep diversifying its franchise, secure sufficient funding, either from corporates or individuals, and decrease high depositor concentrations would lead S&P to revise assessment of its funding to “below average.” But neither of these is S&P base-case scenario.

Rating upside is limited over the next two years, in view of the bank’s limited operating record of only four years and its small franchise concentrated in consumer lending in Kazakhstan, where S&P views increasing risks of overheating.