S&P downgrades credit rating on Kazakh Alliance Bank

Azerbaijan, Baku, Sep. 24 / Trend E. Kosolapova/

Standard & Poor's Ratings Services lowered its long-term counterparty credit rating on Kazakhstan-based Alliance Bank JSC to 'CCC+' from 'B-', the agency reported on Tuesday.

The Kazakhstan national scale rating was lowered to 'kzB' from 'kzBB-' and short-term counterparty credit rating was affirmed at 'C'. The outlook is stable.

"The rating action reflects our view that the importance of Alliance Bank to the Kazakh government has decreased since the bank's default in 2009," Standard & Poor's said.

In Standard & Poor's view, a second possible default of Alliance Bank would have a limited impact for the Kazakh government because the bank does not offer any unique products or services. It has a small 4 percent market share, and other Kazakh commercial banks could provide similar services.

Standard & Poor's continues to consider Alliance Bank as a government-related entity (GRE), but notes that the Kazakh government has announced its intention to sell its majority stake in 2013.

"As a result, we have revised our view of Alliance Bank's role for the Kazakh government as a GRE to "limited importance" from "important," and now consider that the likelihood of extraordinary government support to the bank is "moderate" versus "moderately high" previously. Consequently, we now include only one notch of uplift in the long-term rating on the bank, reflecting potential future government support," Standard & Poor's said .

The stable outlook on Alliance Bank reflects expectation that the bank's SACP will remain unchanged over the next 12 months and the government will remain a supportive owner during this period.

The agency expects the bank to meet regulatory requirements on liquidity and capitalization, but foresees no material improvement in its asset quality or capitalization in the next 12 months, given the time-consuming recovery process and the bank's low core profitability.

In Standard & Poor's view, the most likely driver of a rating change on the bank would be an announced sale. However, whether the ratings were affected or not would depend on the nature and terms of the sale, which are factors that could influence the SACP, and the identity of the acquirer.

Separately, Standard & Poor's could take a negative rating action on the bank if it saws significant liquidity deterioration, mainly due to deposit withdrawals. However, this is not base-case scenario.