Moody’s downgrades ratings of Tsesnabank (Kazakhstan) to Caa1; stable outlook

Moody's downgrades ratings of Tsesnabank (Kazakhstan) to Caa1; stable outlookMoscow, July 01, 2010 – Moody’s Investors Service has today downgraded Tsesnabank’s bank financial strength rating (BFSR) to E from E+ and the long-term foreign currency bank deposit rating to Caa1 from B3. The outlook on the deposit rating was changed to stable from negative; the outlook on BFSR is stable. At the same time, Tsesnabank’s Not-Prime short-term foreign currency deposit rating was affirmed.

The downgrade of Tsesnabank’s deposit and debt ratings reflects Moody’s concerns that the bank is operating with very low economic capital due to its weak asset quality and significantly underprovisioned problem loans – the total capital adequacy ratio was 14.2% as at end-April 2010, while the 90 days overdue loans, if combined with the restructured loans, exceeded the bank’s loan loss reserves of 7.8% of total loan book several times. The downgrade also takes into account the rating agency’s concerns that the bank’s core profitability – which excludes income from non-recurring sources, like trading and FX income – is not sufficient to cover the possible new problem loans.

At the same time, Tsesnabank has accumulated a sufficient cushion of liquid assets which accounted for 33% of total assets as at end-April 2010. It has also successfully repaid its US$125 million Eurobond issue earlier this year, and it no longer has any material forthcoming payments apart from usual client operations.

Moody’s previous rating action on Tsesnabank was implemented on 24 February 2009, when the rating agency concluded the ratings review for possible downgrade and consequently downgraded the bank’s local and foreign currency deposit ratings to B3 from B1 and left BFSR of E+ unchanged. At that time, a negative outlook was assigned to all ratings.

The principal methodologies used in rating Tsesnabank 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 Astana, Kazakhstan, Tsesnabank reported total consolidated audited assets of KZT175 billion (US$1.2 billion) at 31 December 2009, while IFRS-compliant net income for 2009 amounted to KZT506 million (US$3.4 million).