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S&P affirmed Development Bank of Kazakhstan at 'BBB+/A-2'; Outlook Stable

Business Materials 5 December 2013 18:07 (UTC +04:00)
Standard & Poor's Ratings Services affirmed its foreign and local currency counterparty credit ratings on the state-owned Development Bank of Kazakhstan (DBK) at 'BBB+/A-2'
S&P affirmed Development Bank of Kazakhstan at 'BBB+/A-2'; Outlook Stable

Baku, Azerbaijan, Dec. 6

By Elena Kosolapova- Trend:

Standard & Poor's Ratings Services affirmed its foreign and local currency counterparty credit ratings on the state-owned Development Bank of Kazakhstan (DBK) at 'BBB+/A-2', the international rating agency reported on Dec.5. The national scale rating is 'kzAAA'. The outlook is stable.

"The ratings on DBK are equalized with those on the Republic of Kazakhstan. This is because we classify DBK as a government-related entity (GRE) and consider it "almost certain" that the Kazakhstan government would provide timely and extraordinary support if DBK ran into financial difficulties," the agency said.

DBK's "integral" link to the government is demonstrated by the state's 100-percent ownership and regular injections into the bank's capital. The government continues to be closely involved in defining DBK's strategy, and S&P expects it will remain involved through the newly established Baiterek National Management Holding. The government has four representatives on the board of directors of DBK including the deputy prime minister, who chairs the board.

"We do not expect the transfer of DBK shares from Samruk-Kazyna to Baiterek to affect our view of the "almost certain" likelihood that the government of Kazakhstan would provide timely and extraordinary support to DBK. We do not expect any material change in DBK's role and link. If anything, DBK's ownership by Baiterek could strengthen the link with the government, given that it will be one of 10 development institutions managed by Baiterek, as opposed to one of over 400 assets managed by Samruk-Kazyna. We do, however, expect some changes to DBK's board of directors as a result of the transfer," the agency said.

DBK's stand-alone credit profile (SACP) is 'b+', reflecting the bank's anchor of 'bb-', as well as its "adequate" business position, "strong" capital and earnings, "moderate" risk position, "below average" funding, and "strong" liquidity, as S&P criteria define these terms.

The SACP takes into account our view of DBK as a GRE with an "almost certain" likelihood of extraordinary government support; strong capitalization as measured by risk-adjusted capital (RAC) with planned significant capital injections by the state; and strong liquidity. S&P balances these factors against DBK's high level of NPLs, compared with domestic commercial non-restructured banks; low core profitability; and concentrated wholesale funding, to arrive at a SACP of 'b+'.

The stable outlook on DBK mirrors S&P outlook on the Republic of Kazakhstan.

S&P would consider raising our assessment of DBK's SACP if the bank significantly diversifies its wholesale funding profile and significantly increases its share of government funding, which the agency considers less confidence-sensitive and more secure than funding from financial institutions. Alternatively, S&P would consider revising downward our assessment of DBK's SACP if the bank does not receive the expected capital injections from the state, resulting in its RAC ratio before diversification falling below 10 percent. A marked deterioration in asset quality would also be viewed negatively but this is not our base-case scenario.

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