S&P downgrades long-term issuer credit rating of Kazakh bank

Business Materials 18 September 2018 16:42 (UTC +04:00)

Baku, Azerbaijan, Sept. 18


S&P Global Ratings, an international credit ratings agency, lowered its long-term issuer credit rating on Kazakhstan-based Tsesnabank to 'B' from 'B+', the outlook is negative, the ratings agency said in a message.

The downgrade reflects the view that Tsesnabank is currently facing liquidity pressures, driven by the outflow of clients’ funds at the end of August that it compensated with about $400 million from an emergency funding from National Bank of Kazakhstan (NBK), according to the message.

“Although the bank has announced that the loan was partially repaid ahead of the schedule and will be fully repaid in the near future, we believe that the bank's liquidity position has structurally deteriorated and is now weaker than peer banks' in Kazakhstan,” the message said. “The agency is therefore revising our liquidity assessment downward to moderate from adequate.”
Experts of the agency consider that the current level of liquidity makes the bank vulnerable to negative market sentiments.

“We also consider that it will be increasingly difficult for Tsesnabank to revert negative trends in profitability and asset quality without additional support from the owners or from the government,” the message said. “We see that the pressure on the bank’s asset quality has increased due to the recent tenge depreciation and the high proportion of foreign-currency denominated loans in its loan book (around 48 percent). At the same, we note that the share of foreign-currency loans has significantly decreased over the past two years (from 67 percent at end-2016).”

“Another indication of portfolio quality deterioration is the reduction in interest income received in cash,” the ratings agency said. “The figure dropped to 67 percent for the first half of 2018 from 68 percent in 2017 and 83 percent the year before. We believe that the bank will need to create additional provisions that will put pressure on its profitability. “

At the same time, analysts say that they may revise the outlook on the ratings on “Stable”, if pressure on the liquidity and asset quality indicators of Tsesnabank JSC decline.

A change in the forecast is possible in case of consistent clean up of the balance sheet, as well as if the bank will be able to revise its business model in such a way that it would contribute to sustainable generation of profits and increase in the capital indicators, the agency said.