Baku, Azerbaijan, Nov. 15
By Elena Kosolapova – Trend:
The International Rating Agency S&P Global Ratings affirmed its 'B/C' long- and short-term counterparty credit ratings on Kazakhstan-based Kassa Nova Bank JSC, the rating agency reported. The outlook is negative.
At the same time, the rating agency affirmed its 'kzBB' Kazakhstan national scale rating on the bank.
“The affirmation reflects our expectation that the bank will maintain strong capitalization, supported by a capital increase via conversion of a Kazakhstan tenge (KZT) 3.8 billion (about $11.4 million) subordinated loan into Tier 2 regulatory capital in October 2016, which compensates for the deteriorated profitability during the first three quarters of 2016,” S&P said.
The current maturity date of the subordinated loan is in July 2028, and management received a preliminary agreement from the lender, who is also the shareholder, to extend the maturity of this instrument to 2033 for the purpose of strengthening its equity content. The documentation will be signed by year-end 2016.
According to S&P’s base-case assumptions, Kassa Nova Bank will report losses in 2016, but the agency expects it will start improving its profitability and achieving return on assets of up to 0.5 percent in 2017, given the reduction of funding costs in the banking system and the expectation of gradual economic recovery in Kazakhstan. This supports the assessment of the bank's capital and earnings as strong.
S&P still sees vulnerabilities to the bank's profitability related to Kassa Nova Bank's franchise and business model in the currently difficult operating conditions in Kazakhstan. The bank's franchise and client base remain small compared to peers', and it has a market share of about 0.4 percent by assets, which totaled 96.3 billion tenge ($283 million) as of Sept. 30, 2016. S&P does not incorporate any additional support from the bank's majority shareholder Kazakh businessman Bulat Utemuratov.
“In our view, the bank's business position remains weak, owing to its small market share and narrow franchise, and it has a moderate risk position due to its focus on inherently risky retail and small and midsized business and the deteriorated quality of the loan portfolio,” the rating agency reported.
The assessment of average funding and adequate liquidity stem from S&P’s view of the bank's stable customer-deposit funding and sufficient liquidity cushion. The long-term rating is at the same level as the stand-alone credit profile, since S&P does not incorporate any support or additional factors into the rating.
The negative outlook reflects the pressure on the bank's creditworthiness, namely on its franchise, asset quality, and profitability, from the unfavorable operating conditions in Kazakhstan.
S&P might lower the ratings over the next 12 months if the bank's franchise deteriorates significantly, due to loss of loan or deposit customers, continued losses in 2017, or a sharp reduction in its liquidity cushion. The rating agency would also downgrade the bank if it fails to extend its subordinated loan beyond its current maturity of 2028, which will result in weakening of its capital position.
The rating agency could revise the outlook to stable over the next 12 months if the operating environment improves, the bank demonstrates sustainability of its franchise, restores its profitability, and improves its provisioning to be more in line with peers'.
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