S&P upgrades Bank of Astana credit ratings; outlook Stable

/Standard & Poor's, Frankfurt, August 4, 15, heading by KASE/ – Standard & Poor's Ratings Services said today that it had raised its long- and short-term counterparty credit ratings on Bank of Astana JSC to 'B/B' from 'B-/C'. The outlook is stable. At the same time, we affirmed our 'kzBB' Kazakhstan national scale ratings on the bank. The upgrade reflects the diversification of Bank of Astana's funding profile over the past 12 months, in line with our expectations. In our view, the structure of the bank's funding profile is now similar to that of regional peers. Bank of Astana has repaid debt to Astana-Finance JSC, attracted key state companies as corporate depositors, and increased retail deposits after its retail deposit license was reinstated in April 2014. As a result, we now regard its funding as "average" rather than "below average," as defined in our criteria. Bank of Astana's stable funding ratio was 135.7% as of year-end 2014, supporting our assessment. As we expected, Bank of Astana was able to replace Kazakhstani tenge (KZT) 46 billion (about $307 million) in funding from Astana-Finance as of midyear 2014 with state, corporate, and retail customer deposits, funding under government support programs (13% of total funding), interbank funding, and a debut domestic senior unsecured debt to be placed in August. As a result, Astana-Finance's deposit had reduced to KZT704 million as of midyear 2015. Nevertheless, the bank's funding base remains concentrated, showing a high dependence on state companies, which account for a major share of corporate deposits. Concentration is a common feature in the Kazakh banking system, however. Retail deposits comprised 12% of Bank of Astana's deposit base as of midyear 2015, which is lower than at regional peers. We expect the share of retail deposits to rise over the next two years because the bank plans to attract employees of its shareholders' companies. Although in Kazakhstan, retail depositors are more costly and confidence sensitive than corporate depositors, we believe the increase in retail deposits would enhance the bank's funding diversification and granularity. Bank of Astana's license to collect retail deposits and open accounts was reinstated on April 1, 2014, after being revoked from Astana-Finance in 2010. To address tight tenge liquidity in the market, the bank obtained a $15 million (KZT2.8 billion) one-year foreign currency swap from the National Bank of Kazakhstan in November 2014, which it expects to repay from liquid assets. The bank's assets and liabilities in foreign currency were well matched as of midyear 2015: KZT26.5 billion equivalent in deposits against KZT28 billion equivalent in loans. The bank has registered a KZT50 billion medium-term notes program and is currently leading negotiations to place a debut KZT20 billion 9.5% issue maturing in 2020, which should improve its debt maturity profile. Our view of other bank-specific factors has not changed. The stable outlook reflects our expectation that Bank of Astana's financial profile will remain generally unchanged over the next 12 months. In particular, we expect the bank to maintain capital and liquidity at current levels and further diversify its lending and funding profiles. We also expect that the shareholders will continue their track record of making capital injections to support the bank's growth strategy. We could take a negative rating action if the bank's loan growth significantly exceeds its forecast or the shareholders' planned capital injection is delayed, weakening the bank's loss-absorption capacity, with our forecast risk-adjusted capital ratio declining below 10%. Any emerging funding pressures, in terms of availability and/or cost; a significant increase in nonperforming loans; and substantially higher provisions would also erode the bank's creditworthiness and could trigger a downgrade. Rating upside is limited over the outlook horizon. Primary Credit Analyst: Annette Ess, CFA, Frankfurt (49) 69-33-999-157; annette.ess@standardandpoors.com Secondary Contact: Anastasia Turdyeva, Moscow (7) 495-783-40-91; anastasia.turdyeva@standardandpoors.com Additional contact: Financial Institutions Ratings Europe; FIG_Europe@standardandpoors.com [2015-08-05]