S&P upgrades rating on Kazakh Eurasian Bank to 'kzBBB+'; 'B+' with positive outlook

Azerbaijan, Baku, July 17 / Trend E. Kosolapova/

Standard & Poor's Ratings Services had revised its outlook on Kazakhstan-based Eurasian Bank to positive from stable and affirmed its 'B+' long-term and 'B' short-term counterparty credit ratings on the bank, the agency reported on Wednesday.

At the same time, S&P raised its Kazakhstan national scale rating on Eurasian Bank to 'kzBBB+' from 'kzBBB'.

"The rating actions reflect our view that Eurasian Bank's business position in Kazakhstan's banking system has been strengthening. The bank advanced its market share to 3.5 percent by assets as of June 1, 2013, from 2.8 percent at year-end 2009, while maintaining its position among the country's top 10 banks. Eurasian Bank has significantly expanded its retail client base, reaching more than 700,000 active customers, of which more than 110,000 are retail depositors," S&P said.

According to S&P, the return on assets in the bank was 2.4 percent and the return on equity 25 percent in 2012, after a loss of Kazakhstani tenge 9.4 billion (about $63 million) in 2009. In addition, as of Dec. 31, 2012, the net interest margin had increased to 6.9 percent from 1.9 percent in 2009, and the cost-to-income ratio improved to 55 percent from 106 percent. The bank's current profitability metrics are among the strongest of the top 10 Kazakh banks.

Eurasian Bank's capitalization, as measured by risk-adjusted capital ratio (RAC) before adjustments, strengthened to 6.1 percent at year-end 2012, from 3.9 percent two years earlier, and S&P expects it to move into the 6.5-7.0 percent range by the end of 2014.

In addition, the bank maintains stable asset-quality indicators, which compare favorably with peers', with the ratio of nonperforming loans (NPLs; loans more than 90 days overdue) at 7.7 percent as of March 31, 2013. This metric is enhanced by a meaningful volume of relatively unseasoned new lending; therefore S&P regards asset quality as a neutral factor for the ratings.

S&P can upgrade the ratings on the bank if the bank maintains its disciplined risk appetite and pricing, and its balance-sheet strength with regard to capitalization, funding, and liquidity. This may be consistent with Eurasian Bank exhibiting slower loan growth than many peers.
The agency could take a negative rating action if Eurasian Bank were to show an increased risk appetite, for example through weaker underwriting standards, rising single-name concentrations, or a reversal of the positive trend in capitalization and profitability.