(The following statement was released by the rating agency)
MOSCOW, April 17 (Fitch) This commentary replaces the version
published on 16
April 2014 and corrects the source of funding in paragraph 14.
Fitch Ratings-Moscow-16 April 2014: Fitch Ratings has upgraded
JSC's (ACB) Long-term Issuer Default Ratings (IDRs) to 'B' from
'B-' with a
Stable Outlook and affirmed JSC SB Alfa Bank Kazakhstan's (ABK)
at 'B+' with a Stable Outlook. A full list of rating actions is
available at the
end of this commentary.
KEY RATING DRIVERS - ACB
The upgrade of ACB reflects considerable equity contributions by
major shareholder in 2013 preserving ACB's solid capitalisation,
as well as an
expectation of further capital injections in line with the
bank's rapid growth
strategy. The upgrade also reflects management's ability to find
while maintaining reasonable asset quality. At the same time
ACB's ratings also
factor in its currently small franchise, high concentrations on
both sides of
the balance sheet with significant reliance on deposits of
and only moderate profitability.
ACB's shareholder contributed KZT8bn of new equity during 2013,
the bank to sustain a sound 23% Fitch Core Capital (FCC) ratio
at end-2013 (29%
at end-2012) despite a rapid 91% loan growth. Due to ACB's
capital generation (return on average equity of only 8% in 2013)
contributions will be required to achieve a planned annual loan
30%-80% in the medium term. According to management, the
shareholder is ready to
provide KZT17bn of equity in 2014-2017, of which KZT8bn are
expected in 2014.
ACB's reported assets quality is reasonable with non-performing
over 90 days overdue) at 4.1% of gross loans at end-2013 and a
further 1.3% of
restructured exposures. The latter number may be somewhat
understated, as among
the top 25 loans (comprised 51% of the loan book at end-2013)
there is one
exposure equal to 2.7% of loans, which in Fitch's view could be
The bank has also reported a consistently elevated share of
loans (18.7% at end-2M14) in its regulatory accounts, which is
management as being due to technical delays, but in Fitch's view
this shows that
asset quality is potentially vulnerable. ACB is also over
reliant on collateral
reflected in a low coverage of NPLs by reserves of only 37%.
current capital buffer could allow it to fully reserve up to
18.8% of its loans
and still comply with regulatory capital requirements.
ACB mainly relies on corporate customer funding (57% of end-2013
but has gradually been diversifying its liability structure
retail deposits (15%) and issuance of local bonds (21%). At
least 49% of total
customer funding (35% of total liabilities) was sourced from
which, although representing considerable concentration risk,
tends to be
ACB maintains reasonable liquidity cushion sufficient to cover
about 20% of
customer accounts at end-2M14. Wholesale debt repayments are
limited in the
medium term (KZT4.4bn in 2014, KZT2.5bn in 2015). The biggest
risk to liquidity
is the sudden outflows of largest depositors, which is not
The Support Rating '5' reflects Fitch's view that support from
private shareholder, although possible, cannot be relied upon.
Floor of 'No Floor' is based on ACB's low systemic importance.
ACB's senior unsecured local debt ratings are aligned with the
Local Currency IDR and National Long-term rating.
RATING SENSITIVITIES - ACB
Upside potential for ACB's ratings is currently limited.
However, further growth
of the franchise supported by capital injections, while
asset quality and performance would be positive for the credit
profile. Lack of
or delays in provision of fresh capital that would result in
of ACB's loss-absorption capacity, significant deterioration of
and/or sharp funding outflows putting pressure on liquidity
would result in a
KEY RATING DRIVERS - ABK
ABK's Long-term IDRs and National Rating are based on the bank's
strength, which in turn is reflected in its Viability Rating
(VR) of 'b+'. The
VR reflects the bank's small franchise, continuing rapid growth
single-name concentrations on both sides of the balance sheet.
At the same time,
the VR positively considers its strong reported asset quality
and solid capital
adequacy, reasonable liquidity and sound operating performance
helped by low
average funding costs.
Asset quality is strong. NPLs and restructured loans were,
at 1.2 and 2% of gross loans at end-2013 and were adequately
covered by reserves
of 3.6%. Although rapid 42% loan growth in 2013 means loans are
detailed review of the top 20 borrowers (52% of gross loans)
confirmed that most
exposures are of reasonable quality. However, some of the bigger
of gross loans) are less sound either financially or in terms of
quality, while retail loans (7%) are also potentially
Credit risks are mitigated by robust pre-impairment
profitability, which equals
about 5% of average loans, and solid capitalisation with FCC and
total capital ratio of 18.5% and 21%, respectively, at end-2013.
capital would allow ABK to increase its loan impairment reserves
to 12% of gross
loans from 4%, before reaching minimum regulatory capital
Capitalisation is likely to remain comfortable in 2014; however,
outpaces earnings generation (return on equity of 20% in FY13)
the bank is
likely to receive its pre-approved USD40m equity injection from
Liquidity is adequate. ABK relies on short-term funding from
(69% of total funding at end-2013), approximately half of which
was accounted by
20 depositors. Withdrawal risk is mitigated by a KZT46bn
consisting of cash and unencumbered securities, which equalled
28% of customer
funding. Scheduled debt repayments are a moderate KZT7bn in
2014. As a further
mitigant ABK has an unutilised KZT9bn limit (6% of liabilities)
from its 100%
shareholder OJSC Alfa Bank (ABR; BBB-/Negative/bbb-).
The Support Rating of '4' reflects Fitch's view of the limited
support that might be forthcoming from ABR, if needed. In
Fitch's view, support
may be forthcoming in light of the common branding of ABK and
entities, potential reputational risk of any default at ABK and
the small cost
of any support that may be required.
At the same time, Fitch views ABR's propensity to provide
support as limited
because (i) it holds shares in ABK on behalf of ABH Holdings
S.A.(ABHH) to which
it has ceded control and voting rights through a call option
under which ABHH
may acquire the shares in ABK until end-June 2014 (this
agreement likely to be
extended); (ii) limited operational integration between ABK and
ABR; and (iii)
ABR's tight regulatory capital preventing it from providing
capital to the
Support from other Alfa Group entities, in Fitch's view, also
cannot always be
relied on due to ABK's small size and as a result that support
could be withheld
under certain circumstances, especially in a systemic financial
Kazakhstan. Fitch notes ABHH's failure to provide full support
Ukraine-based subsidiary PJSC Alfa-Bank (ABU; CCC) in 2008. The
believes there is a lower probability of Alfa Group not
supporting ABK, relative
to ABU. This is reflected in ABK's higher Support Rating '4'
than ABU's '5'.
ABK's senior unsecured local debt ratings are aligned with the
Local Currency IDR and National Long-term rating.
RATING SENSITIVITIES - ABK
An upgrade of Long-term IDRs, VR, National Rating and debt
ratings would result
from a strengthening of the franchise and an extended track
record of good
performance and asset quality. The ratings could be downgraded
material deterioration in capitalisation or asset quality.
The Support Rating could be downgraded if ABK does not receive
when needed. Potential for an upgrade of the Support Rating is
The rating actions are as follows:
Long-term foreign currency IDR: upgraded to 'B' from 'B-';
Short-term foreign currency IDR: affirmed at 'B'
Long-term local currency IDR: upgraded to 'B' from 'B-'; Outlook
National long-term rating: assigned at 'BB(kaz)'; Outlook Stable
Viability Rating: upgraded to 'b' from 'b-'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'
Senior unsecured debt: assigned at 'B', Recovery Rating 'RR4'
National senior unsecured debt rating: assigned at 'BB(kaz)'
Long-term foreign-currency Issuer Default Rating (IDR) affirmed
at 'B+'; Outlook
Short-term foreign-currency IDR affirmed at 'B'
Long-term local-currency IDR affirmed at 'B+'; Outlook Stable
National long-term rating affirmed at 'BBB(kaz)'; Outlook Stable
Viability Rating affirmed at 'b+'
Support Rating affirmed at '4'
Senior unsecured debt: affirmed at 'B+', Recovery Rating 'RR4'
National senior unsecured debt rating: affirmed at 'BBB(kaz)'
Roman Kornev (ACB)
+7 495 956 7016
Fitch Ratings CIS Limited
26 Valovaya Street
Aslan Tavitov (ABK)
+7 495 956 7065
Konstantin Yakimovich (ACB, ABK)
+7 495 956 9978
+7 495 956 6657
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Additional information is available on www.fitchratings.com.
Applicable criteria, 'Global Financial Institutions Rating
Criteria', dated 31
January 2014, and 'National Scale Ratings Criteria ', dated 30
are available at www.fitchratings.com.
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
National Scale Ratings Criteria
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