Baku, Azerbaijan, Dec. 17
By Elena Kosolapova - Trend: Standard & Poor's Ratings Services raised its long- and short-term counterparty credit ratings on Kazakhstan-based Alliance Bank JSC to 'B/B' from 'D/D', the rating agency reported on Dec. 17. The outlook is stable.
At the same time, the agency raised the Kazakhstan national scale rating to 'kzBB' from 'D'.
"The upgrade follows the announcement that the debt restructuring plan, which includes a merger with Temirbank JSC and ForteBank JSC, was approved by the court on Dec. 12, 2014. This plan leads to a substantial reduction of Alliance Bank's indebtedness to approximatively Kazakhstani tenge 87 billion ($470 million) and therefore to restoration of its solvency," S&P said.
The bank's former controlling shareholder, the sovereign wealth fund Samruk-Kazyna, is supporting the transaction through the conversion of existing deposits with Alliance Bank into a 10-year special term deposit and the placement of additional new deposits with the bank on the same terms. The agency thinks this will stabilize the liquidity profile and ensure the viability of the combined entity.
By Jan. 31, 2015, Alliance Bank's merger with Temirbank and ForteBank is expected to be complete, and the latter two entities fully consolidated into the Alliance Bank. S&P refers to the combined bank as "Alliance Bank" in this report, and the 'B' long-term rating on Alliance Bank reflects the assessment of the group credit profile of the combined entity.
The ratings on Alliance Bank reflect its anchor of 'bb-', as well as its "moderate" business position, "moderate" capital and earnings, "weak" risk position, "average" funding, and "adequate" liquidity, as the agency's criteria define these terms. The stand-alone credit profile (SACP) is 'b-'. The ratings benefit from one notch of extraordinary government support because S&P considers Alliance Bank as a bank with "moderate" systemic importance in Kazakhstan. The agency characterizes the government of Kazakhstan as "supportive" to private sector commercial banks. The group credit profile is a 'b'.
The stable outlook reflects the view that, following the restructuring and merger with Temirbank and ForteBank, the new Alliance Bank will maintain a stable competitive position in Kazakhstan's banking sector, supported by its restored capitalization and profitability. Nevertheless, S&P acknowledges that the integration of Temirbank and ForteBank presents operational challenges and that the bank still needs to demonstrate that the merger will result in creation of a sustainably stronger entity than any of the three entities individually.
The agency could take a negative rating action if the bank's loss absorption capacity materially weakens due to faster-than-expected balance sheet growth, creation of significant additional provisions, or other one-off items that negatively affect profitability and capitalization. S&P would also view customer deposit outflow leading to liquidity deterioration negatively. The agency will also monitor how the bank manages inherent execution risks related to the merger.
S&P considers ratings upside to be limited.
"We could revise our assessment of the bank's risk position to "moderate" from "weak" if we saw a material reduction of legacy problem loans, combined with asset quality of loans disbursed since 2010 being at peer levels and adequate provisioning," S&P said.
The agency would also need to see that the new business model was proving stable and sustainable, even over the weaker parts of the cycle, and the bank generating positive net income and maintaining its capital with a significant cushion above the minimum regulatory levels.
Elena Kosolapova is Trend Agency's staff journalist, follow her on Twitter: @E_Kosolapova