Moody’s downgrades deposit ratings of Nurbank (Kazakhstan) to B3; stable outlook

Moody's downgrades deposit ratings of Nurbank (Kazakhstan) to B3; stable outlookMoscow, July 01, 2010 – Moody’s Investors Service has today downgraded the long-term foreign and local currency bank deposit ratings, and foreign and local currency senior unsecured debt ratings of Nurbank to B3 from B2. The outlook on the deposit and debt ratings was changed to stable from negative. At the same time, Nurbank’s bank financial strength rating (BFSR) of E+ and its Not-Prime short-term foreign and local currency deposit ratings were affirmed.

The downgrade of Nurbank’s deposit and debt ratings is driven by the bank’s weak asset quality – which is not adequately counterbalanced by its capital (with a total capital adequacy ratio of 18.3% as at Q1 2010) and by loan loss reserves (7.3% of total loans as at Q1 2010). Moreover, Moody’s regards the bank’s asset quality as weak, and a significant portion of the restructured loans may deteriorate going forward. The downgrade also takes account of (i) the modest level of liquid assets which comprised around 14% of total assets at year-end 2009; and (ii) the relatively high share of loans to the distressed construction and real estate industries (exceeding 200% of Tier 1 capital as of Q1 2010). Moody’s does not expect to witness any material improvement in this sector in the medium term, which will complicate the asset recovery for the bank.

“In the medium term, Nurbank is likely to continue facing significant pressure from still tough credit conditions in Kazakhstan, and it will be difficult for the bank to withstand the consequences of the global financial crisis without external support,” says Maxim Bogdashkin, a Moody’s Analyst and the lead analyst for the bank. “At the same time, the new shareholders’ plan to increase the bank’s capital by end of 2010 would support the stable outlook on its ratings,” adds Mr. Bogdashkin.

Moody’s previous rating action on Nurbank was implemented on 9 February 2010, when the rating agency assigned a B2 long-term local currency debt rating to the bank’s local currency-denominated bond issue.

The principal methodologies used in rating Nurbank were “Bank Financial Strength Ratings: Global Methodology” (February 2007), and “Incorporation of Joint-Default Analysis into Moody’s Bank Ratings: A Refined Methodology” (March 2007), which can be found at in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody’s website.

Headquartered in Almaty, Kazakhstan, Nurbank reported total consolidated audited assets of KZT297 billion (US$2.0 billion) at 31 December 2009, while IFRS-compliant net income for 2009 amounted to KZT314 million (US$2.1 million).