Baku, Azerbaijan, Nov. 28
By Aygun Badalova - Trend
Standard & Poor's Ratings Services lowered its long-term Kazakhstan national scale rating on VTB Bank Kazakhstan to 'kzA' from 'kzA+'.
At the same time, S&P affirmed its 'BB/B' long- and short-term counterparty credit ratings on the bank. The outlook remains negative, the report of S&P said.
The lowering of the national scale rating reflects the view of S&P that the bank's asset quality is weakening.
"This is demonstrated by the increase of its nonperforming loans to 11.4 percent of total loans on Oct. 1, 2015, under local standards, from 5.4 percent at the beginning of the year," the report said.
S&P believes that the loan portfolio's quality will likely deteriorate further in 2016, given the difficult economic conditions in Kazakhstan. S&P also sees as a risk the concentration of the loan portfolio, with the 20 largest borrowers accounting for 35 percent of total loans and 2.3x the bank's total adjusted capital at midyear 2015.
Although this is comparable with local peers' concentrations, it is still high in an international comparison, according to the report.
S&P also expects that the bank's capital ratios will be under pressure over the next two years, despite a significant capital injection of Kazakhstani tenge 7.375 billion (about $24 million) that the bank expects to receive by the end of 2015.
S&P forecasts its risk-adjusted capital ratio for the bank--before adjustments for concentration and diversification--at 5.6-6.6 percent over the next 12-18 months, under the weight of elevated credit costs of 3.0-3.5 percent of total loans and a net operating margin of 6.0-6.5 percent.
At the same time, S&P believes that VTB Bank Kazakhstan will remain a highly strategic subsidiary of VTB Bank JSC and continue receiving operational, managerial, and financial support from its parent under almost all foreseeable circumstances.