S&P Downgrades Kazakhstan-based Delta Bank to ‘CCC-‘

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The International Rating Agency S&P Global Ratings has lowered its long-term counterparty credit rating on Kazakhstan-based Delta Bank to ‘CCC-‘ from ‘CCC+’, S&P said in a message.

At the same time, the agency lowered its Kazakhstan national scale rating on the bank to ‘kzCCC-‘ from ‘kzB-‘.
S&P is keeping all the ratings, including the ‘C’ short-term counterparty credit rating, on CreditWatch, where it placed them on Dec. 30, 2016, and have changed the implications to negative from developing.

“The rating actions stem from our concerns regarding the pressures on Delta Bank’s liquidity position,” the rating agency said.

S&P noted that Delta Bank’s liquid assets, including securities available for repurchase transactions, had reduced to less than 4 percent of total assets as of Jan. 20, 2017. In the second half of January, Delta Bank’s scheduled debt repayments exceed its current liquid assets, although S&P believes shareholder support will allow the bank to meet them.

The rating agency noted that Delta Bank requested support from the Central Bank in December 2016. S&P has no clarity on whether the NBK will provide this support or when it will do so.

However, the bank’s shareholders have already provided 5 billion Kazakhstani tenges (about $14 million) to Delta Bank. They plan to inject an additional 15 billion tenges in cash by Jan. 25, 2017, which should be sufficient to repay a 10 billion tenges domestic bond due on Jan. 31, 2017.

Still, S&P cannot exclude further outflows of wholesale funds from the bank.

S&P expects to resolve the CreditWatch within the next few weeks, as soon as it has greater clarity on potential support from the NBK and Delta Bank’s liquidity situation in over the coming months.

The rating agency may lower the ratings to the ‘CC’ category if management’s actions and/or the National bank support appear unlikely to be sufficient to prevent a default. S&P could also lower the ratings to ‘SD’ (selective default) or ‘D’ (default) if it discovers that the bank has stopped servicing some or all of its obligations.
S&P could affirm the ratings or even raise them if the bank’s liquidity position were to stabilize, enabling the bank to service its debt obligations in full and on time.