Fitch: Kazakh Bank Sector Rehabilitation Starting To Take Shape

Fitch Rates Kazakhstan's Real Estate Fund Samruk-Kazyna 'BB+'; Outlook Stable

The Kazakh bank sector rehabilitation is starting to take shape, Fitch Ratings said Feb. 16.

“We believe asset quality could improve significantly as a result of the state’s plan, announced in February, to provide KZT2trn through the problem loan fund for purchases of distressed loans from troubled banks,” the message said.

However, considerable uncertainty remains as to the pricing and mechanisms for loan sales to the fund and the banks and assets that would be eligible, Fitch Ratings said.

“Accordingly, we believe that risks for creditors of the sector’s weaker banks remain considerable, as they may be forced to share losses before or as any support kicks in,” the message said.

“We estimate that non-performing loans across the sector were about KZT0.6trn at end-1H16,” the message said. “However, significant asset risks, estimated at KZT3.4trn, also stem from restructured and other distressed exposures, the latter mainly relating to Kazkommertsbank (KKB).”

According to the message, the two largest Kazakh banks, Halyk Bank of Kazakhstan (HB) and KKB, each accounting for about 20 percent of sector assets, are discussing a potential deal.

“We believe that an acquisition of KKB by HB is possible but the cleaning-up of KKB from distressed assets is a pre-requisite for HB,” the message said. “Should KKB’s rehabilitation measures prior to a hypothetical purchase by HB prove insufficient, HB’s Long-Term Issuer Default Rating of ‘BB’ could be downgraded.”

According to the message, the third-largest Kazakh bank, Tsesnabank, plans to buy a 41.9 percent stake in Bank Centercredit, potentially creating a bank with a market share of 14 percent.

“The acquisition costs would probably be small but may increase as a result of the mandatory offer to minority shareholders before a subsequent legal merger,” the message said. “However, the risks for the banks’ ‘B’ ratings are limited, given their already low level.”