Moody’s affirms Halyk Bank’s Ba2/D- ratings (Kazakhstan)

Aug 25. The FINANCIAL

Moody's affirms Halyk Bank's Ba2/D- ratings (Kazakhstan)Moody’s Investors Service has today affirmed the Ba2 local and foreign-currency deposit and senior unsecured debt ratings, and the D- bank financial strength rating (BFSR) of Halyk Bank.

At the same time the outlook on all of the bank’s ratings was changed to stable from negative.

The change of the outlook on the bank’s ratings demonstrates the stabilisation of its credit profile, reflected by (i) the gradual recovery of the Kazakh economy; (ii) the bank’s enhanced position in the country’s lending and deposit taking markets; (iii) good liquidity with a high level of liquid assets and no significant debt repayments in the next few years; and (iv) the likely peaking of problem loans in H2 2010, which along with the bank’s improving net income should secure a reasonable level of capital adequacy in the medium-term.

According to Moody’s, Halyk Bank’s D- BFSR, which translates into a Baseline Credit Assessment (BCA) of Ba3, is underpinned by the bank’s leading market position in Kazakhstan, with shares of aggregate banking assets and retail deposits of 18.4% and 20.8%, respectively (end of May 2010), according to the bank’s regulatory reports. The rating also

benefits from the bank’s acceptable capitalisation and liquidity and its relatively good earnings diversification. However, the rating also acknowledges the risks associated with Halyk Bank’s weak asset quality, stemming from the continued difficult economic conditions in Kazakhstan. The bank’s Ba2 deposit and senior unsecured debt ratings are based on its

Ba3 BCA and Moody’s assessment of a moderate probability that systemic support would be extended to the bank in case of need. This support assessment results in a one-notch uplift from Halyk Bank’s Ba3 BCA.

Moody’s notes Halyk Bank’s ratings have limited upside potential in the near term. However, a significant improvement in the bank’s asset quality, coupled with good liquidity and capitalisation, will have positive rating implications in the medium-term.

Conversely, a further material deterioration of the bank’s asset quality and earnings generation may hamper its capitalisation and result in a downgrade of Halyk Bank’s BFSR. A downgrade of the bank’s BFSR is likely to result in a downgrade of its deposit and debt ratings. A reduced systemic support probability stemming from a downgrade of Kazakhstan’s sovereign ratings, or if there is evidence that the government is less willing to support the bank, may also result in a downgrade of the bank’s deposit and debt ratings.

Moody’s previous rating action on Halyk Bank was implemented on 24 February 2009 when (i) the bank’s BFSR was downgraded to D- from D; (ii) the local currency deposit rating was downgraded to Ba2 from Baa3; (iii) the foreign currency deposit rating was downgraded to Ba2 from Ba1; (iv) the foreign currency senior unsecured debt rating was downgraded to Ba2 from Baa3; and (v) a negative outlook was assigned to all ratings.

The principal methodologies used in rating Halyk Bank were “Bank Financial Strength Ratings: Global Methodology”, published in February 2007, and “Incorporation of Joint-Default Analysis into Moody’s Bank Ratings: A Refined Methodology”, which was published in March 2007 and can be found at www.moodys.com 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, Halyk Bank reported total assets and net income of USD 14.4 billion and USD77.3 million, respectively, as at end Q1 2010 according to the bank’s reviewed IFRS financial statements.

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