Kazkommertsbank may struggle to ensure stability of new business generation – S&P

Kazkommertsbank may struggle to ensure stability of new business generation – S&P

Baku, Azerbaijan, Oct.16

By Elena Kosolapova - Trend:

Standard & Poor's Ratings Services has lowered to 'B-' from 'B' its long-term counterparty credit rating on Kazakhstan-based Kazkommertsbank (KKB).

At the same time, it lowered the Kazakhstan national scale rating to 'kzBB-' from 'kzBB'.

In addition, S&P removed the ratings from CreditWatch with negative implications, where they were placed on Oct. 13, 2014.

"The outlook is negative. We also affirmed the 'C' short-term rating on KKB," said the agency.

"We believe that KKB's capitalization by our measures will be very weak over the next 12-18 months, pressured by nonperforming loans (NPLs) that originated before the 2008 financial crisis," said the message from the S&P.

Furthermore, the acquisition of BTA Bank and the subsequent transfer of some assets to KKB from BTA and others to BTA from KKB, has further complicated an already challenging situation for KKB, according to the rating agency.

BTA is a failed bank with an even higher level of problem assets than KKB--as of June 1, 2015, KKB reported NPLs at 21 percent, while BTA had 86 percent.

S&P doesn't believe that the transfer of KKB loans (gross value of Kazakhstani tenge [KZT] 1,500 billion) to BTA, and the subsequent financing of the same loans through the issuance of a new KZT1, 400 billion 10-year loan to BTA, substantially improves the quality of the underlying loans.

The agency believes that KKB's provisioning level may not be adequate to absorb potential further losses.

In addition, S&P expects the quality of the loan book to deteriorate further toward the end of 2015 as the tenge has depreciated by more than 30 percent since August 2015 and a sizable part of KKB's loan book is denominated in foreign currency.

Based on the revised expectations regarding the bank's projected RAC ratio, S&P has revised down its assessment of KKB's capital position to "very weak" from "moderate."

The agency believes the bank's RAC ratio before adjustments for diversification will decrease to less than 3 percent over the next 12-18 months (estimated RAC as of June 2015: 3 percent).

Its assumptions include there being nearly no new lending growth in 2015 and 2016 and the expectation of additional provisions that the bank will need to create, which are comparable with the provisioning expenses reported in 2014-2015.

S&P has revised up its assessment of KKB's liquidity position to "adequate" from "moderate," reflecting that its liquidity metrics have substantially improved and are now on par with peer banks.

To a large extent, this improvement is due to KKB receiving KZT250 billion from the state-related Problem Loans Fund, earlier this year.

"We assess KKB's funding position as "average," reflecting the bank's limited reliance on wholesale funding and its comfortable stable funding ratio," said the message.

The rating agency has not changed its assessment of KKB's business position from "moderate," as it continues to reflect the bank's leading position in Kazakhstan in terms of total assets and loan book size.

At the same time, the assessment is balanced by KKB's weak new business generation and the challenges that management faces due to its significant legacy problem asset portfolio, according to the message.

"We therefore assess KKB's stand-alone credit profile (SACP) as 'ccc'," said S&P. "The ratings on KKB also reflect our view that the bank has high systemic importance for the government due to its size and market share, and therefore the long-term rating on KKB is two notches higher than the SACP."

The negative outlook on KKB reflects the agency's opinion that it may struggle to ensure stability of new business generation and revenues, despite being the largest bank in Kazakhstan in terms of total assets or gross loans.

S&P could also lower the ratings if it revises down its view of KKB's systemic importance and therefore the likelihood of the government providing support to the bank in case of need.

Although S&P views a positive rating action as unlikely over the next 12-18 months, it notes that a new controlling shareholder, together with KKB's management, is making significant efforts to restructure and stabilize the bank.

The agency believes that these might bear fruit in the long term and support the bank's business position.

Edited by SI


Follow the author on Twitter: @E_Kosolapova

Support to Eastern Partnership states - key pillar for European Council, Charles Michel says
Support to Eastern Partnership states - key pillar for European Council, Charles Michel says
Azerbaijan joins initiative of single roaming space between Eastern Partnership countries
Azerbaijan joins initiative of single roaming space between Eastern Partnership countries
Georgia increase tea import from Azerbaijan
Georgia increase tea import from Azerbaijan
Loading Bars
Support to Eastern Partnership states - key pillar for European Council, Charles Michel says
Azerbaijan joins initiative of single roaming space between Eastern Partnership countries
Turkish Airlines receives permission to operate flights to number of Uzbek cities
Kazakhstan’s KMK Munay decides against paying out dividends for 2020
Kazakhstan's revenues from maritime cargo transport surge
High freight rates significantly raise global prices of commercial ships
Central Bank of Iran allocates funds for import of vaccines
Iran's Energy Exchange announces products to be on sale on April 21
Geostat reveals Producer Price Indices for services in Georgia
Turkmenistan boosts imports of Turkish-made chemicals
Uzbekistan, France agree on deepening interaction in textile industry
Boeing CFO Smith to retire in July
Georgia increase tea import from Azerbaijan
Czech Development Agency talks projects in Georgia
Georgia sees increase in Export Price Index
Domestic Producer Price Index for Industrial Products up in Georgia
Number of oil, gas wells drilled in Iran revealed
Kazakhstan's exports to Bulgaria plummet
Iran's Esfarayen Industrial Complex to increase exports
Azerbaijani payment system to offer instant digital banking cards
Russian iron and steel works company reveals supplies of metal production to Uzbekistan
Baku Higher Oil School organized a webinar on the topic 'Higher Education and Research in the Post-COVID Period' (PHOTO)
PACE can offer support for establishment of lasting peace in South Caucasus - SecGen
Israel's government debt jumped to nearly NIS 1t in 2020
TAP’s gas deliveries for Q1 2021 disclosed
Swiss investments in Azerbaijan concentrated in non-oil sector – Swiss ministry
Azerbaijan names number of vaccinated citizens
Iran to receive vaccine through COVAX
Iran increases salaries for army personnel
Producer Price Index for Industrial Products up in Georgia
Iranian private sector to import 6 million doses of COVID-19 vaccine
Iran to implement extensive and maximum vaccination plan - President Rouhani
Budget provides continued support to Georgian economy - IMF mission
Azerbaijan confirms 2,197 more COVID-19 cases, 1,946 recoveries
Georgia sees decrease in external debt
Pakistan always supports Azerbaijan's just position - Pakistani Admiral
Bahar Azadi gold coin price still falling in Iran
Chairman of Iran Tea Organization talks about tea growing
Russia ready to help Kazakhstan in construction of nuclear power plant
Israeli journalists visit roadside inn in Azerbaijan’s Fuzuli, turned into barn by Armenians during occupation (PHOTO)
Uzbekistan taking additional measures to develop karakul sheep breeding
US company to build cannabis farm in Uzbekistan
France’s Orano to develop new mining sector in Kazakhstan
National Bank of Georgia remains focused on achieving its inflation target
Azerbaijan's International Bank discloses 1Q2021 net profit
Turkmenistan joins WIPO Patent Law Treaty
Armenia outraged by Russian PACE delegates refusal to discuss so-called "issue of POWs”
Electricity generation of Iran's hydroelectric power plants to decline
Azerbaijan's 1Q2021 polyethylene production slightly down
Russian Railways to build high-speed railway entries to Moscow, St. Petersburg by 2024
UAE central bank extends some stimulus measures until mid-2022
President Aliyev interviewed by Azerbaijan Television (PHOTO)
Important to observe int’l law to avoid such conflicts as Karabakh one in future - Chancellor of Germany
UK eases post-Brexit controls on vehicles taking goods to the EU
PayPal's Venmo launches crypto buying and selling
Iran's shares data on sale of public assets
President Ilham Aliyev attends inauguration of Azersun Shamakhi Agropark in Hajigabul (PHOTO)
Iran expects revival of JCPOA in short term
Liabilities of International Bank of Azerbaijan increase
Sinovac supplied 260 mln COVID-19 vaccine doses globally
Azerbaijan names number of foreign visitors in 1Q2021
Elbit Systems awarded $41m US Marines night vision deal
Price of wheat purchased from farmers in Iran increases
President Ilham Aliyev launches 110/35/10 Kv “Garasu” substation in Hajiqabul (PHOTO)
Baku-Tbilisi-Ceyhan’s oil transportation to Turkey down y-o-y
Kazakh oilfield construction company opens tender to buy pipes
SOCAR sums up Kulevi oil terminal’s Q1 2020 performance
Total assets of International Bank of Azerbaijan increase
Iran declares value of exports from cooperative enterprises in Razavi Khorasan Province
Uzbekistan plans introducing charter flights to popular destinations
Companies from Russia’s Smolensk begin to export products to Azerbaijan
Iran reveals COVID-19 data for April 20
Amount of registered Iranian companies in Turkey down
Khazar Consortium in Turkmenistan opens tender for equipment purchase
Azerbaijani banks' foreign currency demand disclosed
Border checkpoint between Iran, Pakistan to be opened
SOCAR’s petrochemical complex to significantly increase sales – Yapi Kredi
French EDF eyes building pumped-storage power plant in Uzbekistan
Turkmenistan's Turkmenhimiya extends tender for turnkey plant construction
Major Iranian companies boost iron ore pellets production
India hopeful US will soon end curbs on Covid vaccine raw materials export
BRO upgrades crucial 110 feet long bridge on India's Leh-Sarchu Road in 8 days
73,600 Covid vaccination centres operational in India on Monday, highest till date
J&J Seeks India's Permission For Phase 3 Trial Of 1-Shot Vaccine: Report
IAF chief RKS Bhadauria visits France as Rafale deliveries gain pace
Covid-19 vaccines for all adults in India from May 1, says Centre
Solar panel stations launched in Iran
Azerbaijan sees surge in 1Q2021 manufacturing of tobacco products
Kazakhstan boosts trade turnover volume with Austria
Yapi Kredi reveals forecasts for SOCAR’s Petkim
EAM Jaishankar speaks to US Secretary of State, exchanges views on Covid, UNSC agenda
Iran sees increase in car manufacturing
Azerbaijan issues data on 1Q2021 oil exports to India
President Ilham Aliyev attends presentation of agropark owned by Agro Dairy LLC in Hajigabul (PHOTO)
Israel logs Indian COVID-19 variant, sees some vaccine efficacy against it
Turkey discloses info on cargo movement via Cesme port for 2M2021
President Ilham Aliyev watches sowing process in farmer Elshan Khalilov’s cotton field
Germany raises import of Turkish-made furniture
Several facilities put into operation in Iran’s Parand New City
President Ilham Aliyev opens Hajigabul-Mughan highway after renovation (PHOTO)
All news