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S&P doubts about Bank of Astana's ability to deliver strong capitalization

Business Materials 28 July 2016 15:12 (UTC +04:00)
International Rating Agency S&P Global Ratings said today that it was keeping its 'B/B' long- and short-term counterparty credit ratings and 'kzBB' Kazakhstan national scale rating on Bank of Astana on CreditWatch with negative implications
S&P doubts about Bank of Astana's ability to deliver strong capitalization

Baku, Azerbaijan, July 28

By Elena Kosolapova- Trend: International Rating Agency S&P Global Ratings said today that it was keeping its 'B/B' long- and short-term counterparty credit ratings and 'kzBB' Kazakhstan national scale rating on Bank of Astana on CreditWatch with negative implications, the agency reported on July 28.

S&P placed its ratings on Bank of Astana on CreditWatch negative on April 25, 2016. The rating action reflected Bank of Astana's materially reduced capitalization at year-end 2015, an expected delay in planned capital injections, and uncertainty about the bank's ability to restore its capitalization by year-end 2016 and maintain it at a strong level thereafter.

Notwithstanding the small improvement in the bank's RAC ratio in the first half of 2016, S&P doubts about the bank's ability to deliver and sustain strong capitalization.

Meanwhile the agency understands that the bank's shareholders stand ready to commit substantial additional capital (beyond the 4 billion tenge) later in 2016 if, as S&P expects, the planned deleveraging falls short. Furthermore, the agency understands that the bank will in future pursue a financial policy of injecting capital ahead of asset growth. These two steps give credence to management's stated intention to build and maintain RAC comfortably above 10 percent, S&P believes. This may also offer greater predictability of credit availability to the bank's customers, supporting its franchise.

The ratings on Bank of Astana reflects the bank's weak business position, due to its small asset base and modest franchise in the Kazakh banking sector. The moderate risk position assessment reflects the risks associated with managing rapid loan growth and S&P’s expectation of moderate asset quality deterioration as loans season amid the challenging economic environment. The rating agency assesses the bank's funding as average and its liquidity as adequate and in line with that of other rated small Kazakh banks.

The long-term rating on the bank is at the level of its stand-alone credit profile (SACP) because S&P considers the bank to be of low systemic importance and does not expect it will receive support from the Kazakh government.

The CreditWatch reflects continued uncertainty regarding Bank of Astana's ability to restore capitalization at a strong level by end-2016 and maintain it thereafter. S&P plans to resolve the CreditWatch within the next three months.

The agency expect to lower its long-term rating on the bank to 'B-' and the short-term rating to 'C' in the next three months if the bank does not increase its RAC ratio to at least 8.5 percent by Sept. 30, 2016.

S&P could affirm the ratings if the bank demonstrates good progress on its recapitalization in the third quarter. The agency would also need to be confident that the bank will not only complete the recapitalization by year-end, but also be able to maintain it at such levels through the forecast horizon of 12-18 months. This scenario also assumes that the bank's risk position will not deteriorate and its funding and liquidity metrics will remain adequate.

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