Baku, Azerbaijan, March 31
By Fikret Dolukhanov – Trend:
Fitch Ratings has affirmed Alfa Bank Kazakhstan's (ABK) Long-Term Issuer Default Ratings (IDRs) at 'BB-', with the Stable Outlook, the rating agency announced in its press release.
“The affirmation of ABK's ratings reflects its stable financial performance supported by relatively low funding costs and reasonable asset quality, as well as a considerable capital buffer, a stable funding base and ample liquidity,” the agency noted.
According to Fitch, the ratings are constrained by the bank's currently limited franchise and large appetite for growth, especially in unsecured retail lending, which may increase credit risks.
“The bank's asset quality is underpinned by a sizeable low-risk, mostly investment-grade, bond and interbank portfolio (50 percent of total assets at end-2017) and a loan book (43 percent) of reasonable quality,” Fitch’s press release read.
The agency said that ABK's non-performing loans (NPLs) accounted for 6 percent of gross loans at end-2017, and were fully covered by reserves and restructured loans made up an additional 7 percent (0.2x of Fitch core capital (FCC))
“Positively, most such exposures are backed by hard collateral. Loan dollarisation is also moderate with performing and non-restructured FX loans amounting to 9 percent of gross loans (0.3x FCC), but Fitch views the largest of these exposures as of only moderate risk,” Fitch noted.
According to the agency, ABK's aggressive retail loan growth plans with an emphasis on unsecured cash lending (on average 60 percent per year in 2018-2020) may result in higher credit risks, although these should be covered by wide margins.
However, Fitch believes that the risk stems from potential overheating in the retail segment, which could happen over the medium-term due to increasing competition.
“ABK's pre-impairment profit for 2017 equalled to a solid 7 percent of gross loans, translating into a decent return on average equity (ROAE) of 12 percent and providing the bank with a reasonable margin of safety against potential asset quality deterioration,” the rating agency said.
ABK's FCC at end-2017 was a high 18 percent of risk-weighted assets (RWAs), which is in line with the bank's regulatory capital ratios. At end-1M18, its regulatory ratios fell moderately by 2 percent to 16 percent, due to a one-off adjustment for IFRS 9.
Fitch estimates that ABK's capital buffer is sufficient to withstand additional loan impairment equalling to 12 percent of gross loans and still comply with regulatory requirements, including a 2 percent capital conservation buffer.
ABK is mainly customer-funded (95 percent of total liabilities at end-2017). Funding concentration is high, with the 20-largest customer accounts making up 36 percent of total, but the risk is mitigated by a stable and counter-cyclical deposit base (the bank benefits from flight to quality), rapid loan turnover and an ample liquidity buffer, which covered 60 percent of total customer accounts at end-1M18.
---
Follow the author on Twitter: @FDolukhanov