S&P affirms Eurasian Bank (Kazakhstan) credit ratings at "B/B", revised the national scale rating from "kzBB" to "kzBB+", outlook "Stable"
28.01.11 17:01
/Standard & Poor's, London, January 27, 11, Standard &Poor's English
translation, KASE headline/ - Standard & Poor's Ratings Services said today it
revised its outlook on Kazakhstan-based JSC Eurasian Bank to stable from
negative. At the same time, the 'B/B' long- and short-term counterparty credit
ratings on the bank were affirmed. The national scale rating was raised to
kzBB+' from 'kzBB'.
The rating actions reflect our view of the robust economic recovery in the
Republic of Kazakhstan (foreign currency BBB/Stable/A-3; local currency
BBB+/Stable/A-2; Kazakhstan national scale rating 'kzAAA') and stabilization
of the operating environment (see "Outlooks On Kazakhstan-Based
Kazkommertsbank (JSC), JSC Nurbank, And AsiaCredit Bank Revised To
Stable; Ratings Affirmed," published on Jan. 24, 2011, on RatingsDirect).
"They also reflect our view of a positive trend in Eurasian Bank's asset
quality and profitability, as well as the bank's adequate funding and
liquidity," said Standard & Poor's credit analyst Annette Ess.
Eurasian Bank is a midsize commercial bank with assets totalling Kazakhstani
tenge (KZT) 336 billion (about $2.2 billion) as of Sept. 30, 2010, representing
2.9% of the domestic market. It is ultimately owned by three Kazakh
businessmen, Alexander Mashkevitch, Alijhan Ibragimov, and Patokh Chodiev,
who also hold a 44% stake in London Stock Exchange-listed Eurasian Natural
Resources Corporation PLC (BB+/Stable/B).
Although we consider that the bank benefits from its shareholders' business
connections, the ratings reflect our assessment of Eurasian Bank's stand-alone
credit quality, with no uplift for extraordinary parental or government support,
which we consider uncertain.
The new management team has turned the bank around and is focusing on
improving asset quality and achieving profitability. As a result, nonperforming
loans (NPLs; those 90 days overdue) at year-end 2010 reduced to 7.4% from
10.6% at year-end 2009, and restructured loans decreased to 25.0% from
31.4%. Our definition of loans under stress includes both NPLs and restructured
loans. The improvements were supported by rigorous collections, stronger new
loan underwriting, and lower exposure to the risky construction and real estate
sectors than the system average. Loans to these sectors accounted for only 10%
of Eurasian Bank's portfolio on Sept. 30, 2010. New loan loss provisions reduced
markedly in 2010 compared with 2009. The ratio of loan loss reserves to
customer loans was 11.7% on Sept. 30, 2010, lower than the sector average.
Eurasian Bank's low capitalization continues to be its major weakness, in our
view. The estimated risk-adjusted capital (RAC) ratios of 3.8% before
adjustments and 2.9% after adjustments for concentration as of Sept. 30, 2010,
were the lowest among the Kazakh banks we rate, excluding defaulted banks.
The ratio of adjusted total equity to adjusted assets was also low at 7.05% as
of Sept. 30, 2010. Tier 1 and total capital adequacy ratios stood at 7.8% and
14.6%, respectively, at year-end 2010. A proposed capital increase of $50
million in the second half of 2011 and another $50 million in 2012 to support
planned loan growth reflect the bank's strategy of maximizing the return on
equity while running tight capitalization. However, low profitability does not
allow for an earnings buffer. The bank returned to profitability in the second
half 2010 with an expected small profit for the full year.
We view the bank's liquidity as adequate, owing to a 30% share of liquid assets
as of Nov. 30, 2010. However, we expect this to decline because the bank aims
to achieve a higher return on assets. Moreover, the loans-to-deposits ratio of
87.9% on Sept. 30, 2010, was one of the strongest among rated Kazakh banks.
The bank does not have any foreign debt outstanding.
"The outlook is stable because we believe that Eurasian Bank's creditworthiness
should be adequately resilient, given the improved economic growth prospects
and stabilized operating environment," said Ms. Ess. "We expect capitalization
to increase slightly, supported by enhanced internal capital generation and the
shareholders' capital contribution, and asset quality improvements to continue."
The ratings could be lowered if the bank's asset quality or capitalization
weakened or if its provisioning became inadequate. Upside for the ratings could
result from a significant strengthening of capitalization, resulting in a RAC
ratio of more than 7%; a continuously positive trend of reducing loans under
stress; marked improvement in profitability; and the maintenance of adequate
liquidity.
Analysts:
Magar Kouyoumdjian, London, (44) 207 176 72 17
magar_kouyoumdjian@standardandpoors.com
Annette Ess, Frankfurt, 49 (69) 33 999 157
annette_ess@standardandpoors.com
GroupE-MailAddress@standardandpoors.com
[2011-01-28]