Fitch Affirms Sberbank Kazakhstan at 'BBB-'; Withdraws VTB Kazakhstan's Ratings

Wed Jan 22, 2014 10:25am EST

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(The following statement was released by the rating agency) MOSCOW/LONDON, January 22 (Fitch) Fitch Ratings has affirmed Kazakhstan-based Subsidiary Bank Sberbank of Russia OJSC’s (SBK) Issuer Default Ratings (IDR) at ‘BBB-’ with a Stable Outlook and upgraded its Viability Rating (VR) to ‘bb-’ from ‘b+’. Fitch has also withdrawn without affirmation Subsidiary JSC VTB Bank (Kazakhstan)'s (VTBK) ratings, as the bank has chosen to stop participating in the rating process. Fitch will no longer provide ratings or analytical coverage of VTBK. A full list of rating actions is at the end of this commentary. KEY RATING DRIVERS - SBK'S IDRS, SUPPORT RATING, SUPPORT RATING FLOOR, DEBT RATINGS AND NATIONAL RATING SBK's IDRs are based on the high probability of support from its owner, Sberbank of Russia (Sberbank, BBB/Stable), if needed. Sberbank’s propensity to support SBK would likely be high, in Fitch's view, given the full ownership, the strategic importance of Sberbank’s expansion in the CIS region and internationally, the moderate cost of any potential support, significant potential reputational risks arising from a subsidiary default, Sberbank's strong track record to date of supporting its subsidiaries, including SBK, and the solid government relations between Russia and Kazakhstan. The one-notch differential between Sberbank’s and SBK’s IDRs reflects the cross-border ownership, some operational independence of the Kazakh subsidiary and SBK’s so far limited contribution to Sberbank's operations (less than 2% of consolidated assets), although Fitch understands that Sberbank considers development of SBK an important part of its international expansion. RATING SENSITIVITIES - SBK'S IDRS, SUPPORT RATING, SUPPORT RATING FLOOR, DEBT RATINGS AND NATIONAL RATING SBK's ratings would likely be upgraded or downgraded in case of similar rating action on the parent or if Fitch’s view of support propensity changes. KEY RATING DRIVERS - SBK'S VR The upgrade of SBK's VR to ‘bb-’ from 'b+' reflects the continuing strengthening of the bank's domestic franchise; its track record of robust performance driven by solid margins and low funding costs. It also reflects the low level of problem loans, albeit the recent rapid loan growth (47% in 2013) may result in asset quality deterioration as the loan book seasons, and the ordinary benefits of support, including reasonable capitalisation maintained through timely capital injections by the parent. SBK’s asset quality compares well with large Kazakh banks. At end-9M13, reported non-performing loans (NPLs; more than 90 days overdue) were a low 2.6% and covered by provisions equal to 3.3% of the portfolio. However, Fitch considers that some of the top 25 loans (amounting to 7% of gross loans), are potentially risky although not NPLs. Positively, SBK's available capital buffer and robust pre-impairment profitability (4.3% of average total assets in 9M13, annualised) are sufficient to fully cover these exposures in a downside scenario. SBK reported a reasonable 12.7% regulatory total capital adequacy ratio at end-2013, supported by a KZT7.5bn equity injection from Sberbank in December 2013 and earnings retention. On the funding side, SBK relies on corporate deposits, which tend to be sticky, with the loans/deposits ratio standing at 92% at end-3Q13. However, the bank plans to gradually increase the share of market funding. RATING SENSITIVITIES - SBK'S VR SBK's VR has limited upgrade potential from its current level given the somewhat unseasoned loan book and further growth challenges. A sharp deterioration in asset quality and loss absorption capacity could lead to a downgrade. SBK is the fifth-largest bank in Kazakhstan, focusing primarily on corporate business. Sberbank currently owns virtually 100% of SBK. The rating actions are as follows: SBK Long-Term foreign currency IDR: affirmed at 'BBB-'; Outlook Stable Long-Term local currency IDR: affirmed at 'BBB-'; Outlook Stable Short-Term foreign currency IDR: affirmed at 'F3' Viability Rating: upgraded to 'bb-' from 'b+' Support Rating: affirmed at '2' National Long-Term Rating: affirmed at 'AA(kaz)'; Outlook Stable Senior unsecured debt rating: affirmed at 'BBB-(EXP)' Senior unsecured debt National Rating: affirmed at 'AA(kaz)(EXP)' Subordinated debt rating: affirmed at 'BB+' Subordinated debt National Rating: affirmed at 'AA-(kaz)' VTBK The following ratings have been withdrawn without affirmation: Long-Term foreign currency IDR: 'BBB-'; Negative Outlook Short-Term foreign currency IDR: 'F3' Long-Term local currency IDR: 'BBB-'; Negative Outlook Support Rating: '2' National Rating: 'AA(kaz)'; Negative Outlook Senior unsecured debt rating: 'BBB-' Senior unsecured debt National Rating: 'AA(kaz)' Contacts: Primary Analyst (SBK) Aslan Tavitov Associate Director +7 495 956 7065 Fitch Ratings CIS Limited 26 Valovaya Street Moscow 115054 Primary Analyst (VTBK) Roman Kornev Associate Director +7 495 956 7016 Fitch Ratings CIS Limited 26 Valovaya Street Moscow 115054 Secondary Analyst (SBK) Roman Kornev Associate Director +7 495 956 7016 Secondary Analyst (VTBK) Aslan Tavitov Associate Director +7 495 956 7065 Committee Chairperson Alexander Danilov Senior Director +7 495 956 9901 Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: julia.belskayavontell@fitchratings.com; Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, ‘Global Financial Institutions Rating Criteria’, dated 15 August 2012, ‘National Scale Ratings Criteria’, dated 19 January 2011, ‘Assessing and Rating Bank Subordinated and Hybrid Securities’, dated 5 December 2012, ‘Rating FI Subsidiaries and Holding Companies’, dated 10 August 2012 are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here National Scale Ratings Criteria here Assessing and Rating Bank Subordinated and Hybrid Securities here Rating FI Subsidiaries and Holding Companies here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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