S&P expects gradual improvement in asset quality of Kazakh bank

S&P expects gradual improvement in asset quality of Kazakh bank

Baku, Azerbaijan, July 21

By Leman Zeynalova - Trend:

S&P Global Ratings said today that it affirmed its 'B/B' long and short-term issuer credit ratings and outlook on Kazakhstan-based Bank CenterCredit.

“We also raised our long-term Kazakhstan national scale rating on the bank to 'kzBBB-' from 'kzBB+'. The outlook on the global scale rating is stable,” said the report.

“The global scale rating affirmation reflects our expectation that the bank's asset quality indicators will continue to gradually improve through recoveries and write-offs. We raised the local scale rating because we now view the bank's relative creditworthiness as stronger than other comparable local peers with the same global scale rating.”

S&P expects gradual improvement in the bank's asset quality indicators through recoveries and write-offs of legacy problem loans.

BCC's reported NPLs are currently at system average, and still relate mostly to legacy problem loans generated before 2008.

According to consolidated accounts prepared under International Financial Reporting Standards (IFRS), BCC's NPLs decreased to 9.7 percent as of March 31, 2018 from 14.6 percent two years earlier. Restructured loans accounted for an additional 17 percent of total loans as of year-end 2017, which is in line with domestic peers. “Our view of BCC's risk position also reflects the bank's sizable single-name and sector lending concentrations and comparable loan-loss experience to other midsize Kazakh banks.”

S&P considers BCC's funding to be comparable to other Kazakh banks, reflecting funding by retail and corporate customer deposits complemented by local senior unsecured bonds and subordinated debt.

“The bank's average stable funding ratio over the past five years of 122 percent (as calculated by S&P Global Ratings) supports this assessment. We view BCC's liquidity position as adequate reflecting its adequate share of broad liquid assets, which covered wholesale debt maturing in the next 12 months by 5.7x as of March 31, 2108. In addition, broad liquid assets covered about one-third of all customer deposits, which compares positively to deposit outflows of 7 percent in 2017.”

Given BCC's market position as the seventh-largest Kazakh bank by assets and its sizable market share in lending and retail deposits, S&P considers the bank to have moderate systemic importance for the Kazakhstan banking sector. “We believe it would likely receive extraordinary support from the government if required. Accordingly, the issuer credit rating is one notch higher than the stand-alone credit profile to reflect potential extraordinary government support.”

The stable outlook on Bank CenterCredit reflects S&P expectation that its business and financial profiles will remain broadly unchanged over the next 12 months.

JSC Bank CenterCredit is one of the top commercial banks in Kazakhstan in terms of assets and total deposits. The Bank’s primary business consists of corporate and retail banking. Its corporate banking activities include a broad range of wholesale banking products to a diversified group of domestic customers, primarily small and medium sized companies. The Bank’s retail banking activities and products include retail lending and deposit taking and credit and debit cards. The Bank is also an active participant in the fixed income securities market and foreign currency markets in Kazakhstan.

The Bank’s objects, as set out in the Bank’s Articles of Association, are to promote the development of the state economy and to ensure the receipt of dividends by the Bank’s shareholders through a variety of banking operations in compliance with the laws of Kazakhstan.

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Follow the author on Twitter: @Lyaman_Zeyn

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