Baku, Azerbaijan, June 30
By Elena Kosolapova – Trend:
S&P Global Ratings affirmed its 'B' long-term and 'B' short-term counterparty credit ratings on Kazakhstan-based JSC Eurasian Bank. The outlook is stable.
At the same time, S&P affirmed 'kzBB' Kazakhstan national scale rating on the bank.
The affirmation reflects S&P’s view of a Kazakh tenge (KZT) 15 billion (about $45 million as of June 29, 2016) capital injection that Eurasian Bank will receive from shareholders by the end of August 2016.
Thanks to this capital increase, S&P expects that bank's loss-absorption capacity will remain modest, with S&P Global Ratings' risk-adjusted capital (RAC) ratio above 5 percent in 2016-2017.
S&P notes that the weak operating environment and unpredictable shocks in the domestic economy could expose Eurasian Bank to higher-than-expected losses. However, S&P believes that these risks are adequately mitigated by the bank's committed shareholders, risk-averse policy introduced by its experienced management team, leading market positions in non-mortgage retail lending, especially auto loans, and diversified business model among corporate and retail segments.
S&P projects low earnings capacity, given potential sector instability in 2016, which can be caused by recurrent interest rate increases on short-term money market instruments and further local currency temporally movements.
The stable outlook on Eurasian Bank reflects S&P’s expectation that, over the next 12-18 months, the bank's experienced management team will be able to mitigate the pressure on the bank's modest loss-absorption capacity despite prevailing downside sector and economy risks.
S&P also expects that the bank will continue its diversified operations as a leading provider of financial services, especially in specific retail subsegments.
S&P would take a negative rating action if Eurasian Bank's projected RAC ratio fell below 5 percent over the next 12-18 months due to substantially higher-than-expected market sensitive or credit losses, or in case of deviation from the current limited growth strategy in the absence of sufficient equity injections.
Likewise, further deterioration of the bank's liquidity metrics or a prolonged period of the share of NPLs in total lending materially exceeding our base-case level of 10 percent - 12 percent in 2016 would trigger a downgrade. If Eurasian Bank were to lose its leading positions in the auto loans or other non-mortgage retail segments over the next 12-18 months, S&P would also view this as negative for the rating.
A positive rating action is unlikely in the next 12-18 months given the increasing economic and industry risks in the Kazakh banking sector.
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