Moody's downgrades ratings of Kaspi Bank, bank deposit ratings outlook changed to negative from stable

/Moody's Investors Service, London, April 24, 2015, KASE heading/ Outlook on deposit ratings has been changed to negative from stable; outlook on debt ratings remains negative Moody's Investors Service has today downgraded Kaspi Bank's senior unsecured local- and foreign-currency debt ratings to B2 from B1 and downgraded the bank's Baseline Credit Assessment (BCA) to b2 from b1. Concurrently, Moody downgraded the bank's subordinated local-currency debt rating to B3 from B2 and the national scale rating (NSR) to Ba3.kz from Ba2.kz. Moody's also affirmed Kaspi Bank's B1/Not Prime deposit ratings. The outlook on Kaspi Bank's long-term global scale senior unsecured ratings remains negative, while the outlook on the long-term global scale deposit ratings was changed to negative from stable. Moody's has also withdrawn (for business reasons) the outlook on the bank's subordinated debt. Please refer to Moody's Investors Service's Policy for Withdrawal of Credit Ratings, available on its website www.moodys.com. RATINGS RATIONALE – BCA AND DEBT RATINGS As detailed below, the three key drivers for the downgrade of Kaspi Bank's BCA and debt ratings are (1) the bank's weakening asset quality; (2) the substantial decline in loan loss reserve coverage; and (3) the deteriorating operating environment in Kazakhstan. – Firstly, in accordance with the bank's most recent audited IFRS statement, the share of unsecured consumer loans (including credit cards and point-of-sale loans) increased to 71.9% of gross loans as at year-end 2014 (year-end 2013: 67.6%; year-end 2012: 56.5%). Moreover, 'past due' loans climbed to 24.5% of gross loans at year-end 2014 (year-end 2013:21.7%; year-end 2012: 18.2%). In Moody's view, this performance indicates the increased fragility of the bank's assets. – Secondly, although Kaspi Bank's capital adequacy and profitability remained healthy in recent years, the coverage of overd .4% market share in retail deposits and a 6.2% share in total deposits as at year-end 2014 (year-end 2010: 6.8% and 3.7%, respectively). Given Kaspi Bank's increased systemic importance, Moody's incorporates one notch of systemic support into the bank's deposit ratings, thus positioning these ratings one notch above the bank's BCA of b2. WHAT COULD CHANGE THE RATING DOWN/UP Kaspi Bank's long-term debt and deposit ratings could be downgraded as a result of any deterioration in its solvency metrics, i.e. asset quality, profitability and capital adequacy. Moody's may upgrade Kaspi Bank's long-term ratings in the event of any substantial improvement in the operating environment and on evidence of improvement in the bank's asset quality profile, albeit a scenario that – in Moody's view – has low likelihood in the next 12 to 18 months. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Banks published in March 2015. Please see the Credit Policy page on www.moodys.com for a copy of this methodology. Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in June 2014 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings". REGULATORY DISCLOSURES For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com. For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity. This rating was initiated by Moody's and was not requested by the rated entity. This rated entity or its agent(s) participated in the rating process. The rated entity or its agent(s) provided Moody's access to the books, records and other relevant internal documents of the rated entity. Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review. Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating. Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. [2015-04-27]