Fitch upgrades Kazakh BTA Bank’s ratings, affirms Kazkommertsbank’s ratings

August 18. Trend

By Elena Kosolapova

Fitch upgrades Kazakh BTA Bank’s ratings, affirms Kazkommertsbank's ratingsInternational Rating Agency Fitch Ratings has upgraded Kazakhstan-based BTA Bank’s Long-term Issuer Default Ratings (IDRs) to ‘B-‘ from ‘CCC’ and maintained them on Rating Watch Positive (RWP), Fitch reported on August 18. The agency has also affirmed Kazakh Kazkommertsbank’s (KKB) Long-term IDRs at ‘B’ with a Stable Outlook.

Kazkommertsbank’s Short-term foreign and local currency IDRs was affirmed at ‘B’, Viability Rating was affirmed at ‘b’, Support Rating was affirmed at ‘5’, Support Rating Floor was affirmed at ‘B-‘. Moreover Fitch affirmed Kazkommertsbank’s Long-term senior unsecured debt rating at ‘B’, Recovery Rating ‘RR4’, Short-term senior unsecured debt rating – at ‘B’, Subordinated debt rating – at ‘B-‘; Recovery Rating ‘RR5’.

BTA Bank’s Short-term foreign and local currency IDRs was upgraded to ‘B’ from ‘C’ and removed from RWP, Viability Rating was affirmed at ‘ccc’ and removed from RWP, Support Rating ‘5’ was placed on RWP.

Support Rating Floor was affirmed at ‘No Floor’ and withdrawn.

Senior unsecured debt was upgraded to ‘B-‘ from ‘CCC’ and maintained on RWP, Recovery Rating ‘RR4’

“The upgrade of BTA’s Long-term IDRs to ‘B-‘ from ‘CCC’ reflects Fitch’s opinion of the moderately improved support prospects for BTA as a result of KKB’s acquisition of a 46.5 percent stake in the bank’s ordinary share capital in July 2014 from the National Welfare Fund Samruk Kazyna (SK), and its receipt from SK of a further 4.5 percent of BTA’s shares under a trust management agreement, giving KKB operational control over BTA. As part of the divestment, SK also sold another 46.5 percent equity stake in BTA to a private investor,” Fitch said.

In Fitch’s view, KKB is likely to have a high propensity to support BTA, if needed, given plans to integrate the two banks and our expectation that BTA will be consolidated in KKB’s IFRS accounts and qualify as a material subsidiary under the cross-default clauses in KKB’s Eurobonds. The one-notch difference between KKB’s and BTA’s ratings reflect BTA’s still weak balance sheet and its large size, relative to KKB, which may in certain circumstances constrain the propensity and ability of KKB to provide support.

The affirmation of BTA’s Viability Rating (VR) at ‘ccc’ reflects the limited recent changes in the bank’s standalone credit profile, which remains constrained by weak asset quality, capitalisation and performance. Upside potential for the rating is limited given the deep-seated nature of the bank’s problems.

KKB’s ratings reflect the bank’s weak asset quality and the potential need for further provisioning of its problem loans. However, the ratings also consider KKB’s positive pre-impairment profit (net of accrued interest), moderate refinancing and liquidity risks, and the track record of significant debt repayments in a challenging environment.

In Fitch’s view, risks and uncertainties relating to the BTA acquisition, and the reduction in capital ratios resulting from an ongoing share buyback, are both moderately negative for KKB’s credit profile. However, these risks are consistent with the bank’s ratings.

KKB’s VR, IDRs, and debt ratings could be downgraded if the bank’s solvency deteriorates significantly more than Fitch currently anticipates as a result of greater than expected losses on its own or BTA’s problem assets. Successful workouts of problem loans, resulting in a strengthening of the capital position, could result in upward pressure on the ratings.

The RWP on BTA’s Long-term IDRs and senior debt rating reflects the potential for these ratings to be upgraded to ‘B’ as a result of closer integration between KKB and BTA.

KKB’s ‘5’ Support Rating and ‘B-‘ Support Rating Floor (SRF) reflect Fitch’s view of the limited probability of support from the Kazakh authorities given recent defaults of other large Kazakh banks. In light of the weak track record of support, there is limited upside for these ratings. BTA’s Support Rating ‘5’ has been placed on RWP to reflect the potential for closer integration between KKB and BTA. In line with its criteria, Fitch has withdrawn BTA’s SRF as it now views institutional (shareholder) support as the more likely source of external support for the banks.

The ratings of both banks’ senior unsecured debt issues are equalised with their respective Long-term IDRs and would likely change in tandem with these ratings. KKB’s subordinated debt and perpetual debt issues are notched off the bank’s VR by one and two notches, respectively. The two-notch differential on the perpetual debt reflects its deep subordination and the possibility of coupon omissions.