Baku, Azerbaijan, Sept. 6
By Elena Kosolapova – Trend:
S&P Global Ratings assigned its 'B' long-term and 'B' short-term counterparty credit ratings to ATF Bank JSC.
The outlook is negative, S&P said Sept. 6.
At the same time, S&P assigned 'kzBB' Kazakhstan national scale rating to the bank.
“Our ratings on ATF Bank reflect the high operating environment risks for a commercial bank functioning primarily in Kazakhstan, which we factor into our 'bb-' anchor (the starting point for assigning a rating to a bank) for Kazakh domestic banks,” S&P said.
“They also reflect our view of the bank's moderate business position as the fifth-largest bank in Kazakhstan; its weak capital and earnings, due to its small capital buffer, which are restrained by elevated credit costs and low profitability; the bank's moderate risk position, reflecting significant legacy nonperforming loans (NPLs) and potential new loan-loss provisions required; and finally the bank's average funding and adequate liquidity, owing to its diversified funding base and an abundant liquidity cushion,” the agency added.
According to the message, the long-term rating on ATF Bank is one notch higher than its stand-alone credit profile, reflecting S&P’s view of the bank's moderate systemic importance in Kazakhstan as the fifth-largest bank with a market share of 4.4 percent in total loans and 6.0 percent in total deposits on Aug. 1, 2016.
“This means we consider that ATF Bank's failure would likely have a material, but manageable, adverse impact on Kazakhstan's financial system and real economy,” the agency said. “Thus, we believe ATF Bank has a moderate likelihood of receiving extraordinary support from the government if needed.”
S&P assesses ATF Bank's business position as moderate, reflecting the bank's medium size and its cautious business development strategy implemented by the experienced management team.
According to the message, the bank's core profitability is weak, with return on adjusted assets below 1 percent in 2014-2015.
The agency doesn't expect that the bank's net interest margin and core profitability will improve in the next 18 months, due to the bank's planned deleveraging and expectations of elevated credit costs, the message said.
However, in view of still unfavorable economic environment in Kazakhstan, S&P expects that the level of NPLs will still remain sizable for ATF Bank, due to still large exposure to corporate clientele involved in international trade that are affected by the economic stagnation.
Thus, S&P expects that new loan-loss provisions will likely be required over the next 12 months. This will exert further pressure on the bank's profitability and capital.
According to the message, the negative outlook on ATF Bank reflects the one-in-three likelihood of a downgrade.
S&P could lower the ratings if ATF Bank's asset quality deteriorates considerably over the next 12-18 months, which would result in the rise in credit costs up to the expected system average of 3.0 percent -3.5 percent by the end of 2016, exerting further pressure on the bank's profitability and capital and pushing the RAC ratio down below 3 percent.
The agency could revise the outlook to stable in the next 12-18 months if the bank's capital buffer expands significantly, resulting in a RAC ratio, as calculated by S&P Global Ratings, remaining sustainably above 3 percent, supported by stronger profitability or on the back of sufficient capital injections.
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