VTB Bank Kazakhstan's parent bank expected to facilitate bank's growth plans for 2020-2021

Finance Materials 29 October 2020 17:09 (UTC +04:00)
VTB Bank Kazakhstan's parent bank expected to facilitate bank's growth plans for 2020-2021

BAKU, Azerbaijan, Oct. 29

By Nargiz Sadikhova - Trend:

S&P Global Ratings today affirmed its 'BB+/B' long- and short-term issuer credit ratings on VTB Bank (Kazakhstan), Trend reports citing S&P.

The outlook remains stable, 'kzAA' national scale rating was also affirmed on the bank.

“We affirmed the ratings because we believe the bank's regulatory capital and liquidity buffers will allow it to withstand the pressures from adverse operating conditions in Kazakhstan, caused by the economic downturn and the COVID-19 pandemic. On top of that, we believe VTB Bank (Kazakhstan) will remain of strategic importance to the VTB group and receive potential shareholder support if needed. Consequently, we believe that VTB Bank (Kazakhstan) will remain a highly strategic subsidiary of VTB Bank and continue benefiting from its parent's operational, managerial, and financial support under almost all foreseeable circumstances,” the report said.

The operating environment is weighing on VTB Bank (Kazakhstan)'s stand-alone operations, due to its small size, narrow market share, and geographic concentration in Kazakhstan.

“With total assets of Kazakhstani tenge 267.8 billion (about $641 million) on Oct. 1, 2020, the bank ranks among the country's top 20 banks. We expect that the bank will continue to follow its strategy and develop its core business operations focusing on retail clients and small and midsize enterprises, with the aim for the latter two business segments to account for a combined 70 percent of the loan book by year-end 2022. We expect the parent to facilitate the bank's growth plans for 2020-2021, which we expect to be higher than the market average,” the report said.

The S&P said that parent VTB Bank retained 100% of net profits in 2019 in order to support future growth prospects, which also speaks in favor of the shareholder's commitment of support.

“At the same time, we would not exclude a 100 percent dividend payout ratio starting from 2021, as the macroeconomic environment stabilizes. We forecast our risk-adjusted capital ratio will be between 4.6-5 percent in 2020-2021, on the back of high lending growth and credit costs of 3.1-3.6 percent of total loans (below the market average of 5 percent) while the net interest margin will remain high at about 6.5-7 percent during the same period,” the report said.

S&P also expects that the current macroeconomic conditions may add pressure on future asset quality.

“We anticipate the bank's Stage 3 loans will rise marginally to around 15 percent of total loans over the next two years, compared with 14% as of Aug. 1, 2020. We also expect it will maintain a conservative provisioning policy with coverage of nonperforming loans staying above 60% through 2020-2021,” the report said.

“We assess VTB Bank (Kazakhstan)'s funding in line with that of its domestic peers. We believe that the bank's funding base is rather diversified and stable, which is reflected in the stable funding ratio of above 150 percent as of Oct. 1, 2020. We did not see a deterioration in customer confidence in the first eight months of the year; on the contrary, the bank built a sufficient liquidity cushion, which we view as positive in the current macroeconomic environment,” the report said.

S&P said it would lower our rating on VTB Bank (Kazakhstan) if we lowered our rating on VTB Bank.

“A positive rating action on VTB Bank (Kazakhstan) is unlikely over the next 12 months. However, if we were to take a positive rating action on the parent, we would likely take a similar rating action on VTB Bank (Kazakhstan), as long as we continue to consider it a highly strategic subsidiary,” the report said.