Fitch Ratings has downgraded the long-term issuer default rating (IDR) of Kazakhstan's Tsesnabank to 'B' from 'B+' and its viability rating from 'b+' to 'b', while affirming the ratings of five other lenders with stable outlooks, the ratings agency said on December 20.
The downgrade of Tsesnabank, one of Kazakhstan's top ten lenders by assets, was driven by Fitch's view of the bank's deteriorating asset quality and profitability, compounded by a continued moderate capitalisation. The lender's restructured and non-performing loans stood at 6% and 6% of its portfolio respectively at the end of the third quarter, and had remained unchanged compared to 2015.
However, higher asset quality risks stemming from its large volume of foreign-currency loans prompted the ratings agency to downgrade its rating. A third of the lender's foreign-currency loans, which account for 61% of its lending, appeared to not have fully serviced principal or interest in the first nine months of 2016, suggesting they might have been impaired.
Meanwhile, the bank's pre-impairment profit weakened to 3% of average loans in January-September, down from 4% in 2015. The bank's return on asset equity dropped from 16% to 8%, while being supported by lower provisions of 1% of average loans in the same period, down from 2% in 2015. Fitch anticipates that Tsesnabank incurred losses of 7% in 2015 and 12% in January-September.
On a positive note, the lender's profile improved thanks to strong local currency funding, and its liquid assets grew to 22% of liabilities at end-September. The bank's record of accessing financing from quasi-state resources and state-controlled companies are another positive factor in Fitch's evaluation of its rating.
Meanwhile, Fitch affirmed Kazkommertsbank's IDR and viability ratings at 'CCC' and 'ccc' respectively to reflect the lender's “significant distressed assets and modest loss absorption capacity”, the ratings agency wrote in a report. Kazkommertsbank is the country's largest lender. Its weak asset quality is driven by its large loan exposure to former subsidiary BTA, which currently operates as a distressed asset manager. At end-H1, the subsidiary's bad loans amounted to half the parent company's loan portfolio, Fitch explains.
Kazkommertsbank's non-performing loans (NPLs) amounted to 10% of its gross loans at end-September and were fully covered by impairment reserves. However, another 10% of gross loans were risky assets for the bank because they were foreign-currency loans given out to mostly unhedged borrowers, Fitch added. “The bank remains structurally loss-making adjusting for uncollected accrued interest income (60% of accrued interest in 1H16) and other low-quality items, and Fitch does not expect this to reverse quickly as a result of new lending,” it explains.
Fitch also affirmed Halykbank, the country's second largest lender, with an IDR of 'BB', a viability rating (VR) of 'bb' and a stable outlook which, in its view, reflect the bank's strong franchise (the bank also has branches in Georgia), solid profitability and capitalisation.
Rounding up the top four banks in Kazakhstan, Bank Centercredit and ATF Bank also had their IDRs and VRs affirmed at 'B'/'b' and 'B-'/'b-', respectively.
For the former, Fitch cited “the bank's still significant problem loans, modest capitalisation and moderate performance”. The lender's NPLs had declined to 13% of its portfolio at end-September, from 17% at end-2015, thanks to write-offs and transfers to a special-purpose entity. But both its NPLs and its restructured loans, which stood at 12% of its portfolio, remained moderately provisioned by 44% at end-September, the report added. On a positive note, the lender's foreign currency loans represented only 22% of its total loans, a ration that was significantly below the average among its peers. However, half of these loans were recognised as being impaired.
Fitch cited ATF Bank's “persistently weak asset quality, low capitalisation and only modest core profitability” when affirming its IDR and VR at 'B-' and 'b-', respectively. “Fitch believes ATF is also exposed to relatively high liquidity risks considering the possible deposit outflows, partially mitigated by its currently large liquidity cushion,” the ratings agency wrote in the same report. While the lender's restructured loans decreased slightly, from 23% of its total lending at end-2015 to 17% at end-September, its NPLs remained unchanged at 22% of loans at end-September.
Lastly, in affirming the local subsidiary of Russia's Sberbank at 'BB+', Fitch cited “the moderate probability of potential support from the parent bank based on the strategic importance of the [Commonwealth of Independent States] region for Sberbank and the small size of [Kazakh] Sberbank relative to its parent”.
Nevertheless, Sberbank's NPLs have increased from 8% of gross loans at end-2015 to 11.5% at end-September, while its restructured loans surged from 27% to 37%. “Sberbank plans to raise reserves significantly in 2017, but Fitch understands that this might not be sufficient as additional non-impaired foreign-currency loans, equalling 14% of gross loans at end-3Q16, could add to the bank's problem exposures,” the report concluded.
Kazakhstan’s Bank of Astana (Astana Banki) plans to conduct a secondary offering of shares (SPO) on the Moscow Stock Exchange, RNS news agency reported last week. Bidding will begin on December 14. ... more
The Albania’s central bank has announced it will issue a new ALL10,000 (€74.9) banknote. The new ALL10,000 banknote will have the highest value issued so far, as the current biggest value ... more
Tajikistan’s troubled Agroinvestbank announced last week its intention to start selling off assets as its funds are insufficient for returning depositors’ money. The bank aims ... more