September 21, 2017 / 1:34 PM / a year ago

Fitch Affirms Tsesnabank at 'B'; Withdraws Ratings

(The following statement was released by the rating agency) MOSCOW, September 21 (Fitch) Fitch Ratings has affirmed Kazakhstan-based Tsesnabank's (TSB) Long-Term Issuer Default Ratings (IDRs) at 'B' with Stable Outlook and withdrawn the ratings. Fitch has withdrawn the ratings for commercial reasons and will no longer provide ratings and analytical coverage of TSB. KEY RATING DRIVERS IDRS and VIABILITY RATING (VR) TSB's Long-term IDRs of 'B' are based on the bank's standalone credit profile as captured by the VR. The 'b' VR reflects Fitch's view of the weak asset quality of TSB with significant foreign-currency (FC) lending to vulnerable economic sectors, its weak core profitability and modest capitalisation. The 'b' rating also captures the risks of TSB's potential integration with Bank Centercredit (BCC; B/Stable), in which 29.6% of ordinary shares and 13.4% of preference shares were purchased, respectively, by TSB and its parent company. The VR further factors in stable funding with a significant share of quasi-state financing and state-controlled companies' deposits, and the bank's increasing market shares and role in Kazakhstan's banking sector. Fitch's view of TSB's weak asset quality is based on significant levels of non-performing (5% of gross loans at end-1H17) and restructured loans (8%), as well as risks stemming from a large portfolio of FC loans currently reported as non-impaired. Fitch understands that many of the largest borrowers have not fully serviced principal or interest over a long period of time, aggravating TSB's asset quality risks. TSB's core performance is weak. Reported pre-impairment profit fell to 3% of average loans in 1H17 from 4% in 2016. However, adjusted for interest income accrued but not collected in cash, the pre-impairment result was a small loss of 0.2% of average assets in 1H17 after a profit of 1.1% in 2016. Modest capitalisation is highlighted by a low Fitch Core Capital (FCC) ratio (9% at end-1H17) and weak core profitability, large unreserved problem loans (0.7x FCC at end-1H17) and large net non-impaired FC loans (5x FCC). Uncertainty around the main shareholders' sources of previous injections in TSB's equity and their other equity investments, and the potentially moderate negative impact on TSB's capital of a hypothetical merger with BCC, also weigh on TSB's capitalisation. TSB's funding is stable, but the bank's liquidity buffer contracted in 1H17 and was equal to a moderate 11% of total liabilities at end-1H17 from close to 20% at end-2016 as a result of the USD50 million acquisition of shares in BCC. DEBT RATINGS The senior unsecured debt rating at 'B' is aligned with TSB's Long-Term Local-Currency IDR to reflect average recovery expectations. The subordinated debt rating at 'B-' is notched off the VR once, which reflects Fitch's lower recovery expectations than those for senior unsecured obligations in case of a TSB default. SUPPORT RATING (SR) and SUPPORT RATING FLOOR (SRF) TSB's and SR of '5' and SRF of 'No Floor' reflects Fitch's opinion that state support, although possible, cannot be relied upon. This view takes into account Kazakhstan's failure to support systemic banks in the past. RATING SENSITIVITIES Not applicable. The rating actions are as follows: Tsesnabank Long-Term Foreign and Local Currency IDRs: affirmed at 'B'; Outlook Stable; withdrawn Short-Term Foreign and Local Currency IDRs: affirmed at 'B'; withdrawn National Long-Term Rating: affirmed at 'BB+(kaz)'; Outlook Stable; withdrawn Viability Rating: affirmed at 'b'; withdrawn Support Rating: affirmed at '5'; withdrawn Support Rating Floor: affirmed at 'No Floor'; withdrawn Senior unsecured debt: affirmed at 'B'; Recovery Rating at 'RR4'; withdrawn Subordinated debt: affirmed at 'B-'; Recovery Rating at 'RR5'; withdrawn Contact: Primary Analyst Roman Kornev Director +7 495 956 7016 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow 115054 Secondary Analyst Dmitry Vasiliev Director +7 495 956 5576 Committee Chairperson James Watson Managing Director +7 495 956 6657 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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