Fitch affirms long-term default rating of Halyk Savings Bank of Kazakhstan and Halyk Finance, subsidiary of Halyk Savings Bank of Kazakhstan, at ''BB''; Outlook stable
23.01.15 17:01
/Fitch Ratings, Moscow, January 23, 15, KASE heading/ – Fitch has affirmed Halyk
Bank's (HB) and its 100%-owned subsidiary JSC Halyk Finance's (HF) Long-term
foreign and local-currency Issuer Default Ratings (IDRs) at 'BB' with Stable
Outlook. A full list of rating actions is provided at the end of this
commentary.
KEY RATING DRIVERS - HB'S IDRS, VR AND SENIOR UNSECURED DEBT
RATING
The affirmation of HB's Long-term IDRs and senior debt ratings at 'BB' reflects
limited recent changes to the bank's standalone credit profile. HB's Long-term
IDRs are driven by its VR of 'bb', which in turn reflects the bank's established
nationwide franchise, sound capitalisation, robust profitability, and adequate
liquidity. The ratings factor in HB's still high levels of non-performing and
restructured loans, high concentrations and significant foreign-currency loans
to performing but unhedged borrowers.
The Stable Outlook reflects Fitch's view that that the bank has considerable
resilience against risks stemming from a weakening of the operating environment,
due to a fall in oil prices, and potential further devaluation of the tenge.
Fitch views asset quality as the main rating weakness, but does not expect it to
deteriorate significantly from current levels. The NPL/gross loans ratio fell to
14% at end-9M14 from 18% at end-2013, due to loan write-offs, loan growth and
some recoveries. IFRS coverage of NPLs was reasonably solid at 65% by specific
reserves and at 107% by total reserves at end-2014. However, potentially
high-risk restructured loans, at further 8% of gross loans, were only
moderately covered by provisions. A balance sheet clean-up through sale of bad
loans to the state- controlled Problem Loan Fund is currently uncertain.
Relationship-driven lending risks may stem from some of HB's long-term and
lumpy acquisition financing loans secured by equities, including a large
high-risk loan equal to 10% of Fitch Core Capital (FCC). Further risks stem
from foreign currency loans extended to unhedged borrowers (about 70% of FCC at
end- 9M14), which although currently performing, may be stressed if the country
devalues the tenge again. As a moderate mitigating factor most of these loans
have hard collateral backing them.
Capitalisation has further strengthened as reflected by the FCC/ risk-weighted
assets ratio improving to 17.7% at end-9M14 from 14.8% at end-2013. The
regulatory total capital ratio also rose to 20.3% from 18.2%. The bank's pre-
impairment profit is also robust (39.5% of average equity for 9M14), supporting
its solid loss absorption capacity.
Liquidity risks stemming from the increased funding dollarisation (65% of
deposits at end-2014, up from 43% at end-2013) are mitigated by HB's
highly-liquid asset buffer accounting for KZT493bn (USD2.7bn) or 28% of
customer deposits at end- 2014. Refinancing risks are also moderate (outstanding
eurobonds amounted to USD1bn at end-9M14, 8% of liabilities), with a negligible
amount of maturities before 2017. Fitch expects the largest depositor (17% of
liabilities) to remain stable.
RATING SENSITIVITIES - HB'S IDRS, VR AND SENIOR UNSECURED DEBT
RATING
An upgrade of the ratings would result from a further loan book clean-up,
combined with a proven resilience to the depressed oil price environment. The
ratings could be downgraded if asset quality or capitalisation deteriorates
sharply.
KEY RATING DRIVERS - HB'S SUPPORT RATING AND SUPPORT RATING
FLOOR
HB's high systemic importance and political connections make moderate state
support possible, as reflected by its 'B' Support Rating Floor and '4' Support
Rating. However, large-scale capital support is unlikely to be forthcoming for
any privately-owned Kazakh bank, given the recent default history at
medium-sized banks.
KEY RATING DRIVERS AND RATING SENSITIVITIES - HF
HF's Long-term IDRs are aligned with the ratings of HB reflecting Fitch's view
of the latter's high propensity to provide support to its subsidiary, if
needed. Fitch classifies HF as a 'core subsidiary' according to 'Rating FI
Subsidiaries and Holding Companies' criteria based on (i) HF's being an
integral part of the group, wholly owned and supervised by the parent; (ii)
significant reputational risks stemming from a potential default of the
subsidiary; and (iii) limited cost of potential support.
HF's ratings would likely change in tandem with the parent bank's Long-term
IDRs. The ratings could also be downgraded if support fails to be made
available on a timely basis, if needed.
The rating actions were as follows:
Halyk Bank of Kazakhstan
Long-term foreign and local currency IDRs: affirmed at 'BB'; Outlook Stable
Short-term foreign and local currency IDRs: affirmed at 'B'
Viability Rating: affirmed at 'bb',
Support Rating: affirmed at '4'
Support Rating Floor: affirmed at 'B'
Senior unsecured debt: affirmed at 'BB'/'BB(EXP)'
JSC Halyk Finance
Long-term foreign and local currency IDRs: affirmed at 'BB'; Outlook Stable
Short-term foreign and local currency IDRs: affirmed at 'B'
Support Rating: affirmed at '3'
Contacts:
Primary Analyst
Roman Kornev (HB, HF)
Director
+7 495 956 7016
Fitch Ratings CIS Ltd
26 Valovaya Street
Moscow 115054
Secondary Analysts
Aslan Tavitov (HB)
Associate Director
+7 495 956 7065
Evgeny Konovalov (HF)
Associate Director
+7 495 956 9932
Committee Chairperson
Olga Ignatieva
Senior Director
+7 495 956 6906
Media contacts in Moscow:
Ksenia Ivanova, Moscow, Tel: +7 495 956 99 01
ksenia.ivanova@fitchratings.com.
[2015-01-23]