BAKU, Azerbaijan, May 22
By Nargiz Sadikhova - Trend:
S&P Global Ratings affirmed its 'BB' long-term and 'B' short-term issuer credit ratings of Kazakhstan’s Halyk Savings Bank (Halyk Bank), the outlook is stable, Trend reports with reference to the S&P.
S&P affirmed its 'kzA+' Kazakhstan national scale rating on the bank.
“The affirmation reflects our view that Halyk Bank will maintain its current credit standing over the next 12 months. The bank has a leading market position in Kazakhstan and benefits from customer loyalty. We forecast a stable lending portfolio this year before it expands by 5-10 percent during the following two years, once economic activity starts to revive,” the report said.
S&P expects that Halyk Bank will take a prudent underwriting approach to new lending in the next 12 months.
“We anticipate that the bank will be able to continue cherry-picking borrowers in the corporate and SME segment and will focus on mortgages and lending to employees with salary assignments in the retail segment. Halyk Bank now has a dominant market position in Kazakhstan's banking sector, accounting for about 30 percent of system-wide loans and 35 percent of total customer deposits on April 1, 2020,” the report said.
S&P expects that Halyk Bank's risk-adjusted capital (RAC) ratio will remain around 9 percent during the next two years, compared with 8.9 percent at the end of 2019, supported by the bank's prudent growth strategy and good earning capacity.
“We believe that the bank may pay up to 25 percent of net income as interim dividends nearer to the end of 2020 if the local economy stabilizes. We forecast an increase in credit costs of up to 2.5-2.8 percent of total loans in 2020 from 0.8 percent in 2019 because of the worsening economic environment. We anticipate the bank's credit costs will then gradually decrease to around 2-2.2 percent of total loans in 2021-2022,” the report said..
S&P expects some pressure on the bank's asset quality metrics this year as the economy slows because of COVID-19 containment measures and declined oil prices.
“We note that Halyk Bank's coverage of problem loans by loan-loss provisions improved to 58 percent at the end of 2019 from 50 percent a year ago. The bank is also more effective than domestic peers in collecting interest payments from borrowers, in our view, as demonstrated by its ratio of interest received in cash to interest accrued of around 89 percent in 2019,” the S&P said.
S&P views Halyk Bank's funding profile as favorable compared with its domestic peers, reflecting its diversified deposit franchise with the highest market share in Kazakhstan—35 percent as of April 1, 2020--for both retail and corporate customer deposits.
“We regard Halyk Bank's liquidity as strong, reflecting the large amount of liquid assets on its balance sheet. We expect this to remain the case for the next few years. The bank does not have any large debt repayments due in the medium term and has a very conservative lending strategy. Under our estimates, liquid assets accounted for around 48 percent of the bank's total assets on May 1, 2020,” the S&P said.
S&P considers Halyk Bank as highly systemically important in the Kazakhstan banking sector. However, S&P does not incorporate any support into our issuer credit rating on the bank because its intrinsic creditworthiness is close to its 'BBB-' local currency sovereign credit rating on Kazakhstan.
“The stable outlook reflects our expectation that the bank's high capital and liquidity buffers and strong earnings capacity will allow it to withstand the pressures related to COVID-19 containment measures and the economic slowdown in Kazakhstan,” the S&P said.
S&P noted that negative rating action appears remote in the next 12 months, because it would require a simultaneous deterioration of the bank's asset quality indicators or capitalization, with its RAC ratio decreasing below 7 percent, and the depletion of its liquidity cushion.
“Although unlikely during the next 12 months, we could raise the ratings on Halyk Bank if its asset quality indicators continued to improve with Stage 3 loans decreasing below 15 percent of total loans despite the expected economy slowdown in Kazakhstan and tightening operating environment in the local banking sector. This also assumes that the bank's RAC ratio stays comfortably above 7 percent and its liquidity buffers remain far above those of most peers,” the S&P report said.
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