Fitch rates SB Alfa Bank Kazakhstan 'B+'

Azerbaijan, Baku, June 20 / Trend E. Kosolapova/

Fitch Ratings has assigned JSC SB Alfa Bank Kazakhstan (ABK) Long-term Issuer Default Ratings (IDRs) of 'B+' with a stable outlook, the agency reported.

Short-term foreign-currency IDR was assigned at 'B', Long-term local-currency IDR - at 'B+' with a stable outlook. National long-term rating was assigned at 'BBB(kaz)' with a stable outlook. Viability Rating (VR) was assigned at 'b+' and Support Rating (SR) - at '4'.

"The Long-term IDRs and National Rating are based on the Viability Rating of 'b+'. The Viability Rating reflects the bank's small franchise, high single-name concentrations on both sides of the balance sheet, significant growth in a relatively high risk environment and some uncertainty associated with future development plans, which may at some point be impacted by potential new bank acquisitions in Kazakhstan by ABK's shareholders," Fitch said.

At the same time, the ratings positively consider the solid performance helped by low average funding costs, reasonably strong reported asset quality metrics, the currently sound liquidity and funding position, and solid capitalisation.

Loan quality benefits, in Fitch's view, from considerable management expertise in domestically-focused corporate lending as well as external oversight of the bank's operations by the ultimate parent Luxembourg-based ABH Holdings S.A. (ABHH; unrated). The non-performing (overdue by more than 90 days) loans at end-2012 were at low 0.6 percent of gross loans, and restructured loans made up only 0.5 percent.

Asset quality metrics could, however, come under pressure as the bank expands into more risky market segments, including retail. Fitch also notes a considerable volume of USD loans (27 percent of gross loans at end-2012) that might also be rather sensitive to any potential deterioration in the operating environment.

Mitigating credit risk is the currently significant loss absorption capacity. ABK could have increased its loan impairment reserves to 19 percent of gross loans at end-2012 before its regulatory Tier I capital ratio would fall to the minimum 5 percent.

The Long-term IDRs, National Rating and VR could be downgraded following a material deterioration in asset quality, capitalisation or the funding profile. An upgrade would require an improvement of the operating environment, a longer track record of sustainable performance, and a more extensive franchise.

The SR could be downgraded if ABK does not receive support in a timely fashion, when needed. Potential for an upgrade of the SR is currently limited.

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