Azerbaijan, Baku, Oct. 3 / Trend E. Kosolapova/
Moody's Investors Service downgraded the following ratings of Kazakh Bank CenterCredit: long-term local and foreign-currency deposit ratings to B2 from B1; foreign-currency senior unsecured debt rating to B3 from B2; foreign-currency junior subordinated debt rating to Caa2 (hyb) from Caa1 (hyb); and local-currency national scale rating to B1.kz from Ba3.kz. The outlook on the deposit and debt ratings was changed to stable from negative, whilst the BFSR continues to carry a stable outlook.
Concurrently, Moody's affirmed Bank CenterCredit's E+ standalone bank financial strength rating (BFSR) and lowered the corresponding baseline credit assessment (BCA) to b3 from b2. The bank's Not Prime short-term local- and foreign-currency deposit ratings were affirmed.
The downgrade of Bank CenterCredit's ratings reflects deterioration of the bank's credit profile, in particular its loss absorption capacity, which incorporates continued negative pressure on the bank's capital, with an equity-to-assets ratio of 8 percent as of end of the first half of 2013, down from 8.2 percent at year-end 2012 and weak asset quality, with problem loans (overdue over 90 days and restructured loans) accounting for 23 percent of gross loans at end of the first half of 2013, which require higher loan loss reserves than the 15.9 percent of gross loans created as of the same date.
Moreover despite Bank CenterCredit's increasing focus on SME and retail lending, borrower concentration remains high, with the top 20 borrowers accounting for over 300 percent of the bank's Tier 1 capital.
As many of the large loans are problematic and work-out will require several years, Moody's does not expect any substantial improvement in borrower concentration levels over the next 12 to 18 months.
At the same time, Bank CenterCredit's ratings reflect the bank's modest, albeit stabilising, revenue generation.
Bank CenterCredit's ratings also reflect its relative importance to the banking system as the fourth-largest bank in Kazakhstan by total assets, according to the National Bank of Kazakhstan. Therefore, Moody's incorporates a low probability of systemic support in the bank's B2 deposit ratings, which provides one notch of uplift from its b3 BCA. However, Moody's does not assume any systemic support in Bank CenterCredit's debt ratings, which reflects the Kazakh government's track record of not providing support to debt holders of systemically important banks in rescue programmes.
Moody's does not incorporate parental support from one of Bank CenterCredit's largest shareholders -- South Korean Kookmin Bank (A1 stable, C-/baa1 stable), which holds 41.9 percent of the bank's capital through common and preference shares. This support assumption is due to Kookmin Bank's lack of control over the bank and the limited strategic fit of the two financial institutions.
Positive pressure could develop on Bank CenterCredit's ratings as a result of improved asset quality and capital adequacy, coupled with a stable liquidity profile. An increased stake in the bank by Kookmin Bank may also benefit Bank CenterCredit's ratings. A deterioration in Bank CenterCredit's asset quality and profitability, leading to a further weakening of the bank's capital adequacy, could result in a downgrade of its ratings.