Baku, Azerbaijan, Feb. 3
By Elena Kosolapova - Trend:
Standard & Poor's Ratings Services revised its outlook on Kazakhstan-based Nurbank JSC to negative from stable. The 'B/B' long- and short-term counterparty credit ratings were affirmed.
The agency also lowered our long-term Kazakhstan national scale rating on Nurbank to 'kzBB' from 'kzBB+'.
The outlook revision stems from our expectation that Nurbank's deteriorating capitalization, combined with negative trends in Kazakhstan's economy and banking sector, will put further pressure on the bank's creditworthiness over the next 12 months, the statement said.
The agency regards the bank's capitalization as moderate rather than adequate, due to low expected earnings capacity. In S&P's view, Nurbank will be unable to build up capital in 2016 without equity injections, taking into account growth of risk-weighted assets. Nevertheless, both moderate and adequate capital and earnings are neutral rating factors for a bank with a 'bb-' anchor, which starts our rating analysis of banks in Kazakhstan.
The bank's capitalization is being eroded by depreciation of the Kazakhstani tenge, because the share of foreign-currency denominated assets is increasing due to the exchange rate, whereas capital is denominated in tenge.
Positively, net of the devaluation effect, we assess the bank's growth strategy to be reasonable under the difficult economic conditions.
The negative outlook indicates that we might lower the ratings over the next 12 months if weakening capitalization and negative trends in Kazakhstan's economy and banking sector erode Nurbank's creditworthiness. It also reflects our expectation that Nurbank may face difficulties in developing new business and generating sufficient stable revenues to maintain capital over that period.
S&P could lower the ratings if we saw significantly higher industry risks for banks in Kazakhstan or if Nurbank's nonperforming loans started increasing, especially if the increase exceeded that of peers and stemmed from loans granted after 2011. Likewise, a further reduction of Nurbank's loss-absorption capacity, due, for example, to higher provisioning expenses than we currently assume; or material one-time charges that reduce our projected RAC ratio to below 5%, would lead to a downgrade.
The agency could revise the outlook to stable if the bank is able to improve its capitalization to adequate levels, according to our methodology. This is after taking into account forecast growth of the bank's risk-weighted assets, including devaluation and organic growth, and its internal capital generation over the next two years, subject to our view of negative trends in the Kazakh banking industry at that time.
Follow the author on Twitter:@E_Kosolapova