Baku, Azerbaijan, Oct. 4
By Rashid Shirinov - Trend:
S&P Global Ratings today affirmed its 'B/B' long- and short-term issuer credit ratings on Kazakhstan-based Bank Kassa Nova JSC. The outlook is negative.
At the same time, S&P affirmed its 'kzBB+' long-term Kazakhstan national scale rating on the bank.
The affirmation reflects S&P's view that Kassa Nova’s business and financial profiles will remain stable over the next 12 months, supported by its focus on its niche retail segment, limited related party business, ample liquidity, decent profitability, and a supportive shareholder that is able and willing to provide capital and funding support in case of need.
These factors positively differentiate the bank from other small Kazakh banks that have experienced material difficulties in continuing their business over the past two years.
"We continue to view the bank’s combined capital and risk position as vulnerable to weakening over the next 12-24 months, warranting a negative outlook. We view the bank’s historically aggressive NPL provisioning rate and over-reliance on real estate collateral as its risk management policy's main weaknesses," said the report.
Under S&P's base case scenario, it expects the bank’s capitalization, as measured by the risk-adjusted capital ratio (RAC), will remain above 10.5 percent over the next 24 months, compared with 11.1 percent at year-end 2017. S&P's forecast is based on annual loan growth rates of about 10 percent, ROA of about 1 percent, and full earnings retention.
"In August 2018, the bank paid its first ever dividend of 50 percent, but its strategic plans do not include future dividends. Another payment of dividends of comparable size not compensated by proportionate capital injections would likely cause S&P's forecasted RAC ratio to decline to below 10 percent over 2018-2020, leading us to reassess its capital and earnings position downwards, and downgrade the bank," said the report.
"Our negative outlook on Kassa Nova reflects ongoing pressure on the bank's capitalization and asset quality, stemming from the tough operating environment in Kazakhstan. It also reflects the bank's weakened asset quality over the past two years, as evidenced in an increase in nonperforming loans, which is exacerbated by the very low provisioning coverage of NPLs," the report said.
S&P noted that it could lower its ratings on the bank over the next 12 months if the bank’s combined capital and risk position weakened. This could happen due to higher growth rates or lower retained earnings through payment of dividends, or the need to create significant additional provisions higher than assumed in S&P's base-case forecast, leading to the forecast RAC ratio falling below 10 percent.
"An increased in NPLs to over 10 percent, coupled with the decrease in provisioning coverage level to below 50 percent of NPLs, could also lead to a downgrade. The worsening of the economic or industry risk of the Kazakh banking system could lead to an additional pressure on the bank’s capitalization and asset quality," said the report.
"We could revise the outlook to stable over the next 12 months if the bank sustainably strengthened its capitalization and provisioning levels, or showed a sizable improvement in asset quality while successfully growing its core business," S&P added.