S&P upgrades Kazakh Halyk Savings Bank to 'BB+'

S&P upgrades Kazakh Halyk Savings Bank to 'BB+'

Baku, Azerbaijan, July 16

By Elena Kosolapova - Trend:
Standard & Poor's Ratings Services revised its long-term counterparty credit rating on Kazakh Halyk Savings Bank to 'BB+' from 'BB', the rating agency reported on July 16. The outlook is stable.

At the same time, the agency affirmed the 'B' short-term rating and assigned 'kzAA-' Kazakhstan national scale rating to Halyk.

"The rating actions reflect our view that Halyk's competitive position has strengthened over the past four years, leading us to revise our assessment of the bank's business position to strong from adequate," S&P said.

Halyk emerged relatively unscathed from the severe crisis that affected the Kazakh banking sector in 2007-2008, and since then has been able to reinforce its business and financial profiles, unlike many peers, according to the agency.

"We believe the bank will continue to enjoy superior business diversification and earnings stability in the next two years," the agency said.

The strong business position reflects the bank's leadership, business stability, and sustainability in the Kazakh banking system over the past decade. With assets of $14 billion as of June 1, 2014 (unconsolidated), Halyk is the country's second-largest domestic franchise after Kazkommertsbank, according to S&P. It benefits from a stable and experienced management team, and has a more cautious lending strategy than peers' over a full economic cycle. In S&P's view, Halyk's business position in the Kazakh banking sector is superior to that of any other bank.

Halyk's pending acquisition of HSBC Bank Kazakhstan would further marginally strengthen its competitive position in the Kazakh banking sector, given the healthy financial profile of HSBC and its valuable portfolio of blue-chip clients, the rating agency said. HSBC would add about 9 percent of assets and 5 percent of loans to Halyk's balance sheet as of June 1, 2014 (unconsolidated).

The ratings also reflect Halyk's higher profitability than peers' through the cycle, lower funding sensitivity, and lower concentrations in the lending book. Offsetting factors are increasing macroeconomic risks in Kazakhstan and the competitive threat from smaller banks that have experienced a quicker turnaround due to their size.

The bank continues to benefit from a "high" likelihood of extraordinary government support, leading to a one-notch rating uplift above its stand-alone credit profile (SACP), the agency said.

The stable outlook reflects the expectation that Halyk will maintain greater business stability than peers and sustainable profitability, leveraging on its leading market position in key business segments, strong pricing power, and the low confidence sensitivity of funding.

S&P could take a negative rating action if the bank's capitalization weakened materially, due for example to significantly higher provisioning costs or large dividends, resulting in the projected risk-adjusted capital (RAC) ratio before adjustments falling below 5 percent. This is not the base-case scenario, however. A reversal of the positive trend in asset quality and single-name loan concentrations, or a material increase in credit costs, would negatively affect the assessment of the bank's risk position.

The agency does not expect to take a positive rating action on Halyk over the next 12-18 months. S&P expects operating risk for banks in Kazakhstan to remain high, which would prevent further substantial improvement in their creditworthiness.

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