Baku, Azerbaijan, Nov.28
By Elena Kosolapova - Trend:
Standard & Poor's Ratings Services affirmed its CCC+/C long- and short-term counterparty credit ratings and kzB- Kazakhstan national scale rating on Joint Stock Company Zaman-Bank, the rating agency said Nov.28.
Then the rating agency subsequently withdrew the ratings at the bank's request, the message said.
At the time of the withdrawal, the outlook was stable, S&P said.
"The ratings on Zaman-Bank reflected the bb- anchor that starts our rating analysis on financial institutions operating in Kazakhstan," the message said. "The ratings also reflected the bank's "weak" business position, "very strong" capital and earnings, "weak" risk position, "below average" funding and "adequate" liquidity, as our criteria define these terms."
S&P said that their assessment of Zaman-Bank's business position as "weak" reflected the bank's narrow regional franchise, very small market share, limited customer base, and only basic management and risk-control functions that would make it very vulnerable in the event of business expansion. With total assets of Kazakhstani tenge (KZT) 14.9 billion (about $82 million) as of Sept. 1, 2014, Zaman-Bank ranks No. 36 among Kazakhstan's 38 banks, with a market share of 0.1 percent by assets, said the message.
"Our assessment of Zaman-Bank's capital and earnings as "very strong" reflects the bank's low asset growth and conservative capitalization policy compared with that of other small rated Kazakh banks, and our belief that the bank would maintain very high capital ratios in the next two years," the rating agency said. "We forecast that our risk-adjusted capital (RAC) ratio for Zaman-Bank would weaken from 42 percent at year-end 2013, but stay above 30 percent in 2014-2015. The bank's profitability is modest and volatile, in our view. The financial results for the first nine months of 2014 were boosted by the reversal of provisions."
The assessment of Zaman-Bank's risk position as "weak" reflected very high individual, regional, and industry concentration risk in the lending book, the message said. According to the estimates of S&P, the 20 largest loans accounted for about three-quarters of the loan book as of Sept. 30, 2014. About two-thirds of total loans were to small companies operating in the trade, agriculture, and food industries in the Ekibastuz and Pavlodar regions, S&P said.
Nonperforming loans (NPLs; more than 90 days overdue) accounted for 4.5 percent of Zaman-Bank's total loans, as reported by the regulator, as of Sept. 30, 2014, and are in line with those of other small Kazakh banks, the message said. Loan loss reserves to customer loans were adequate, in our view, at 7 percent of total loans, and fully covered NPLs as of Sept. 30, 2014, the agency said.
"We assessed Zaman-Bank's funding as "below average," reflecting the very high reliance on shareholder deposits and equity as the main funding sources," the message said.
External deposit funding is low, given the bank's limited franchise, said the agency.
The agency assesses Zaman-Bank's liquidity is "adequate," with liquid assets accounting for 23 percent of total assets as of Sept. 30, 2014.
"At the time of the withdrawal, the outlook was stable, reflecting the balance between our expectation that the bank will maintain very strong capitalization and the bank's persistently vulnerable risk profile, marginal competitive position, and concentrated funding over the next 12 months," the rating agency said.
For any questions or feedback, follow the author on Twitter: @E_Kosolapova