BAKU, Azerbaijan, Mar. 3
By Nargiz Sadikhova - Trend:
Fitch Ratings has affirmed Kazakhstan-based SB JSC Home Credit and Finance Bank's (HCK) Long-Term Foreign-Currency IDR at 'B+' with a Stable Outlook, Trend reports citing the Fitch.
"HCK's IDRs are driven by its standalone creditworthiness, reflected in its Viability Rating (VR) of 'b+'; and institutional support which may be provided to HCK in case of need by its parent bank, Russiabased Home Credit & Finance Bank (HCR; BB-/Stable/bb-)," said the report.
In Fitch's view, HCR would have a high propensity to support HCK. This view is based on majority ownership and common branding; the subsidiary's favorable performance and prospects to date, as reflected by HCK's strong contribution to HCR's bottom line; and high reputational risks in case of a HCK default, given Home Credit Group's broader international presence.
The one-notch rating difference between HCK and HCR reflects the cross-border nature of the parent/subsidiary relationship and the subsidiary's large size (22 percent of the parent's assets at end-3Q20), meaning that capital support could be considerable relative to the parent's ability to provide it, Fitch said.
HCK's National Ratings reflect the bank's creditworthiness relative to other credits in Kazakhstan.
"VR HCK's VR reflects its focus on unsecured retail lending and its high-risk/high-return business model. This factor has higher relative importance for the VR. HCK was extremely profitable in the past few years due to wide margins in consumer finance lending. However, this could expose the bank to weaker asset quality and performance, given that consumer finance market in an emerging Kazakh economy may be prone to high cyclicality. HCK's VR also captures the bank's reasonable capital adequacy and some weaknesses in its funding profile," Fitch said.
In Fitch's view, the pressure on HCK's loan quality, stemming from weaker economic growth and the economic implications from the COVID-19 pandemic, was limited in 2020. This view is supported by an only moderate uptick in loan impairment charges (LICs), impaired loan ratios, and non-performing loans (NPL; 90 days overdue) origination ratios.
Fitch believes that HCK may face additional asset quality pressure in 2021, as there may be lags in problem loan recognition.
"We maintain a negative outlook on HCK's asset quality. The bank tightened its underwriting standards in 1H2020, which may expose its retail loan portfolio to additional seasoning/overheating risks," said the agency.
Fitch views the dip in HCK's PIP and its bottom line results as temporary and expects profitability to improve in 2021, as certain revenue components (in particular, net fee income) are highly correlated with volumes of new loan production, which are likely to increase.
HCK's funding profile is a relative rating weakness. This is due to a high loans/deposits ratio, reflecting HCK's significant reliance on wholesale funding, and high funding costs. Fitch views HCK's liquidity position as reasonable as liquidity risks are additionally mitigated by fast retail loan turnover and strong access to liquidity from other group banks, in case of need.
Fitch also expects HCK's loan growth to exceed the market average in 2021, but capital ratios should stay stable, as profit retention should match projected loan growth.
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