(The following statement was released by the rating agency)
MOSCOW/LONDON, August 15 (Fitch) Fitch Ratings has upgraded
Bank's Long-term Issuer Default Ratings (IDRs) to 'B-' from
'CCC' and maintained
them on Rating Watch Positive (RWP). The agency has also
Kazkommertsbank's (KKB) Long-term IDRs at 'B' with a Stable
Outlook. A full list
of rating actions is at the end of this rating action
KEY RATING DRIVERS - BTA'S IDRS
The upgrade of BTA's Long-term IDRs to 'B-' from 'CCC' reflects
of the moderately improved support prospects for BTA as a result
acquisition of a 46.5% stake in the bank's ordinary share
capital in July 2014
from the National Welfare Fund Samruk Kazyna (SK), and its
receipt from SK of a
further 4.5% of BTA's shares under a trust management agreement,
operational control over BTA. As part of the divestment, SK also
46.5% equity stake in BTA to a private investor.
In Fitch's view, KKB is likely to have a high propensity to
support BTA, if
needed, given plans to integrate the two banks and our
expectation that BTA will
be consolidated in KKB's IFRS accounts and qualify as a material
under the cross-default clauses in KKB's Eurobonds. The
between KKB's and BTA's ratings reflect BTA's still weak balance
sheet and its
large size, relative to KKB, which may in certain circumstances
propensity and ability of KKB to provide support.
KEY RATING DRIVERS AND SENSITIVITIES - BTA'S VIABILITY RATING
The affirmation of BTA's Viability Rating (VR) at 'ccc' reflects
recent changes in the bank's standalone credit profile, which
constrained by weak asset quality, capitalisation and
potential for the rating is limited given the deep-seated nature
of the bank's
BTA continues to be burdened by its extremely high volume of
(NPLs; 88% of gross loans at end-1Q14), significant unreserved
problem loans and
illiquid legacy investments in equity securities (23% of Fitch
(FCC) at end-1Q14). We estimate BTA's NPLs, net of specific IFRS
reserves, at a
high 88% of FCC.
Despite the relatively high 25% FCC/risk-weighted assets ratio
capitalisation is weakened by the fact that 60% of FCC relates
to the fair-value
adjustments (reductions) to BTA's low-rate liabilities, which
will have to be
accrued back through the income statement. Pre-impairment profit
interest revenues accrued but not received in cash) turned
in 2013, but internal capital generation is still weak.
BTA's liquidity risks are currently limited in view of its
liquid-asset cushion, amounting to 61% of its customer deposits
or 18% of
liabilities at end-1Q14, its granular third-party deposit base
and the limited
near-term Eurobond maturities.
KEY RATING DRIVERS - KKB's IDRS AND VIABILITY RATING
KKB's ratings reflect the bank's weak asset quality and the
potential need for
further provisioning of its problem loans. However, the ratings
KKB's positive pre-impairment profit (net of accrued interest),
refinancing and liquidity risks, and the track record of
repayments in a challenging environment.
In Fitch's view, risks and uncertainties relating to the BTA
the reduction in capital ratios resulting from an ongoing share
both moderately negative for KKB's credit profile. However,
these risks are
consistent with the bank's ratings.
KKB's high 31% NPL ratio at end-1Q14 and its sizeable exposure
performing real-estate loans (53% of gross loans), a significant
which relates to land investments are credit negative. KKB's
loan book could
require further provisioning given the still moderate (58%)
reserve of NPLs (total reserve coverage of NPLs was 111%) and
the fact that only
a moderate portion of the real estate loans are currently
reported as NPLs.
Net NPLs (NPLs less specific IFRS reserves for NPLs) were a high
1.2x FCC at
end-1Q14, and Fitch estimates this ratio may rise to 1.8x
consolidation of BTA. Total problem loans at KKB (NPLs and
net of total reserves stood at 90% of FCC. Potential benefits
purchases by the government Problem Loan Fund, or co-ordinated
work-out of KKB's
and BTA's largest (sometimes overlapping) exposures, are highly
Fitch estimates that KKB's FCC/risk-weighted assets ratio may
fall to about 10%
following the consolidation of BTA, from 14.5% at end-1Q14, as a
result of (i)
the BTA acquisition; (ii) a buyback of 17.4% of the bank's share
August 2014, mainly from SK; and (iii) adjustments to the book
values of some of
BTA's assets and liabilities. This would represent a significant
the bank's loss absorption capacity, but would still be
consistent with KKB's
'B' rating, in Fitch's view. Furthermore, there is still
regarding the ultimate impact of the BTA acquisition on KKB's
and the scope (and timing) of any further provisioning
requirements on the two
banks' loan books.
KKB's liquidity is comfortable due to the bank's solid deposit
capabilities, potential access to government funding programmes
and limited near
to medium-term wholesale debt repayments. Liquidity management
might be somewhat
complicated in light of the high proportion of SK deposits in
structure. However, Fitch expects these deposits to be
KKB's performance weakened significantly in 1Q14, mainly as a
result of trading
losses on the back of KZT devaluation. However, Fitch views the
pre-impairment profit (net of accrued interest and fair value
4Q13, equal to 2% of average net loans) as a more meaningful
indicator of the
bank's ability to absorb losses through the income statement.
profit in absolute terms should increase slightly following the
consolidation, given the latter's moderately positive result and
some moderate cost synergies.
RATING SENSITIVITIES - KKB's and BTA's IDRS
KKB's VR, IDRs, and debt ratings could be downgraded if the
deteriorates significantly more than Fitch currently anticipates
as a result of
greater than expected losses on its own or BTA's problem assets.
workouts of problem loans, resulting in a strengthening of the
could result in upward pressure on the ratings.
The RWP on BTA's Long-term IDRs and senior debt rating reflects
for these ratings to be upgraded to 'B' as a result of closer
between KKB and BTA.
KEY RATING DRIVERS AND SENSITIVITIES - KKB'S SUPPORT RATING;
KKB's and BTA's
SUPPORT RATING FLOORS
KKB's '5' Support Rating and 'B-' Support Rating Floor (SRF)
view of the limited probability of support from the Kazakh
recent defaults of other large Kazakh banks. In light of the
weak track record
of support, there is limited upside for these ratings. BTA's
Support Rating '5'
has been placed on RWP to reflect the potential for closer
KKB and BTA. In line with its criteria, Fitch has withdrawn
BTA's SRF as it now
views institutional (shareholder) support as the more likely
source of external
support for the bank.
KEY RATING DRIVERS AND SENSITIVITIES - DEBT RATINGS
The ratings of both banks' senior unsecured debt issues are
equalised with their
respective Long-term IDRs and would likely change in tandem with
KKB's subordinated debt and perpetual debt issues are notched
off the bank's VR
by one and two notches, respectively. The two-notch differential
perpetual debt reflects its deep subordination and the
possibility of coupon
The rating actions are as follows:
Long-term foreign and local currency IDRs affirmed at 'B';
Short-term foreign and local currency IDRs affirmed at 'B'
Viability Rating affirmed at 'b'
Support Rating affirmed at '5'
Support Rating Floor affirmed at 'B-'
Long-term senior unsecured debt rating affirmed at 'B'; Recovery
Short-term senior unsecured debt rating affirmed at 'B'
Subordinated debt rating affirmed at 'B-'; Recovery Rating 'RR5'
Kazkommerts International BV:
Senior unsecured debt rating affirmed at 'B'; Recovery Rating
KAZKOMMERTS FINANCE BV:
Perpetual debt rating affirmed at 'CCC'; Recovery Rating 'RR6'
Long-term foreign and local currency IDRs upgraded to 'B-' from
maintained on RWP
Short-term foreign and local currency IDRs upgraded to 'B' from
Viability Rating affirmed at 'ccc', removed from RWP
Support Rating '5', placed on RWP
Support Rating Floor affirmed at 'No Floor' and withdrawn
Senior unsecured debt upgraded to 'B-' from 'CCC', maintained on
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Additional information is available on www.fitchratings.com
Applicable criteria, 'Global Financial Institutions Rating
Criteria', dated 31
January 2014, 'Recovery Ratings for Financial Institutions',
dated 24 September
2013, 'Assessing and Rating Bank Subordinated and Hybrid
dated 31 January 2014 are available at www.fitchratings.com.
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Recovery Ratings for Financial Institutions
Assessing and Rating Bank Subordinated and Hybrid Securities
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