Baku, Azerbaijan, April 4
By Elena Kosolapova – Trend:
The International Rating Agency Fitch Ratings has upgraded Alfa Bank Kazakhstan's (ABK) Long-Term Issuer Default Ratings (IDRs) to 'BB-' from 'B+', the rating agency said in a message. The Outlook is Stable.
“The upgrade of ABK's IDRs reflects the extended record of good financial performance supported by relatively low funding costs and reasonable asset quality, considerable capital buffer and ample liquidity,” Fitch said.
At the same time, ABK's ratings factor in its currently small franchise.
According to Fitch, ABK's loan book is relatively small (35 percent of total assets at end-2016), reflecting deleveraging (by 25 percent in 2016) in favor of investments into National Bank of Kazakhstan low risk notes (36 percent of total assets). Loan quality is adequate, with non-performing loans (NPLs, 90 days overdue) comprising a moderate 7 percent of the end-2016 book. NPLs were comfortably (94 percent) covered by reserves. About 13 percent of loans were restructured but reportedly performing.
Loan concentrations are high, with the 25 largest exposures making 69 percent of corporate loans at end-2016. However, more than half of these are composed of low to moderate risk working-capital loans to cash-generative clients. Also positively, ABK's foreign currency lending was moderate, at 18 percent of gross loans at end-2016, which limits asset-quality risks.
Capitalization is strong, reflected by a high Fitch Core Capital (FCC) ratio of 18 percent at end-2016, up from 14 percent at end-2015.
According to Fitch, the FCC ratio could potentially reduce to a still reasonable 13-15 percent over the next three years as ABK plans to rebuild its loan book subject to it being able to attract good quality borrowers.
Liquidity is ample, with liquid assets, including cash, short-term bank placements and liquid securities covering a high 66 percent of customer deposits at end-2M17. However, the depositor concentration level is high (the top 20 made up 32 percent of customer funding at end-2016), making the bank somewhat vulnerable to sudden outflows of the largest accounts.
The Support Rating of '4' reflects Fitch's view of the limited probability of support that might be forthcoming from Alfa Bank Russia (ABR, BB+/Stable) or other group entities, if needed. In Fitch's view, support may be forthcoming in light of the common branding, potential reputational risk of any default at ABK and the small cost of any support that may be required. At the same time, Fitch views ABR's propensity to provide support as limited.
Support from other Alfa Group entities, in Fitch's view, also cannot be relied on in all circumstances, especially in a systemic financial crisis in Kazakhstan.
ABK's senior unsecured local debt ratings are aligned with the Long-Term Local-Currency IDR and National Long-Term rating, and reflect Fitch's assessment that recoveries are likely to be average in the event of any default.
Further upside potential for ABK is limited given the difficult operating environment and the bank's narrow franchise. A downgrade could result from a substantial deterioration of asset quality or capitalization if this was not offset by sufficient and timely equity support from the bank's shareholders. The debt ratings would likely change in line with the bank's IDRs.
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