S&P Affirms Capital Bank Kazakhstan ‘B-/C’ and ‘kzB+’ Ratings With Negative Outlook

Kazakhstan-based Halyk Bank ratings affirmed and Kazkommertsbank ratings put on watch positive on planned merger - S&P

S&P Global Ratings today affirmed its ‘B-/C’ long- and short-term counterparty credit ratings on Capital Bank Kazakhstan JSC (CBK), the outlook is negative. At the same time, it affirmed ‘kzB+’ Kazakh national scale rating on the bank, reports KazWorld.info with reference to the official website of Rating Agency S&P Global Ratings.

Feb. 15, 2017 S&P Global Ratings says:
“We removed all the ratings from CreditWatch, where they were placed with
negative implications on Feb. 1, 2017.

The affirmation follows an improvement in CBK’s liquidity metrics in the first
half of February 2017. The bank’s liquid assets increased to 14% of total
assets as of Feb. 13, 2017, from 5.5% as of Jan. 27, 2017, on the back of a
long-term shareholder deposit alongside other net customer deposit inflows.
This strengthened the bank’s capacity to deal with future unexpected customer
funds outflows.

Although the bank’s liquidity position stabilized in the second half of
January, we cannot exclude possible panic-driven customer funds outflows in
the future. Although this is not our base case, the possibility of these
outflows is the main driver behind the negative outlook on CBK.

Under our base-case scenario, we project that the bank will meet its planned
repayments till mid-2017 fully and on time without breaching the regulatory
liquidity ratios. We base this expectation on projected inflows of deposits,
potential additional shareholder support, and available unused limits under
the bank’s existing credit facilities.

In addition, we negatively reassessed the bank’s capital and earnings to
adequate from strong, based on our view that asset growth will most likely
outpace the bank’s ability to generate stable profits over the next 12-18
months in the absence of expected capital injections from the owner. Our
risk-adjusted capital (RAC) ratio for the bank stood at 11.2% as of Nov. 30,
2016, and we expect it to stabilize in the next 12-18 months at the 8%-10%

Despite the expected deterioration in the bank’s RAC ratio, we believe that
CBK still will continue to have relatively high level of capitalization
compared with the Kazakh banking system average. Furthermore, local regulatory
Tier 1 and total capital adequacy ratios of 20.7% at year-end 2016 are
comfortably above the regulatory minimums of 6% and 8.5%, respectively.
Therefore, we add one notch of uplift to our assessment of the bank’s
stand-alone credit profile.

The negative outlook reflects our view that CBK, similar to other local banks,
is vulnerable to adverse funding and liquidity developments in the Kazakh
banking sector, and this might impair the bank’s creditworthiness and result
in recurrent liquidity pressures over the next 12 months.

We might lower the ratings over the next 12 months if we see a negative trend
in the bank’s liquid assets due to net deposits outflows in the absence of
tangible support from the owners. We could also lower the ratings if the bank
does not comply with regulatory liquidity ratios. Signs of significant
deterioration in the bank’s loss absorption capacity with the expected RAC
ratio falling below 7% (the lower limit of the adequate capital and earnings
assessment) could also prompt a negative rating action.

We might consider revising the outlook to stable over the next 12 months if we
observe that CBK’s liquidity cushion rebounds to the previous adequate levels
and if we believe that those improvements are sustainable.”

Recall that Capital Bank Kazakhstan has launched a chat bot on OpenWay’s WAY4 Messenger Banking system in August last year. Named “B1NKbot”, the chat bot can be messaged in three different languages – Kazakh, English and Russian – and answers user’s questions about ATM and branch locations, currency exchange rates and the odd off-topic query. The bot can show customers of Capital Bank Kazakhstan their recent transaction history and balances, as well as allow them to block cards, set limit and make transfers.