Fitch downgrades long-term default ratings of Kazkommertsbank and BTA Bank and withdraws ratings of BTA Bank

/Fitch Ratings, Moscow, August 13, 15, heading by KASE/ – Fitch Ratings has downgraded Kazakhstan-based Kazkommertsbank's (KKB) Long-term foreign and local currency Issuer Default Ratings (IDRs) to 'B-' from 'B' and its Viability Rating (VR) to 'b-' from 'b'. The Outlook is Negative. Fitch has also downgraded BTA Bank's Long-term IDRs to 'CCC' from 'B-' and withdrawn the entity's ratings. The ratings of KKB's Russian subsidiary Moskommertsbank (MKB) were also withdrawn. A full list of rating actions is provided at the end of this commentary. KEY RATING DRIVERS - KKB's IDRS, VR, SENIOR DEBT RATING The downgrade of KKB's VR, which drives the downgrade of Long-term IDRs and senior debt rating, reflects negative revisions in Fitch's view of the volume of the bank's problem exposures and their recovery prospects, and a significant weakening in the bank's pre-impairment performance. The ratings also take into account the moderate loss absorption capacity offered by the bank's capital. However, the ratings are supported by KKB's moderate refinancing and liquidity risks, and a track record of significant debt repayments in a challenging environment. The revision in Fitch's view of KKB's asset quality is driven primarily by (i) a recent large transfer of mostly land and real estate loans, the majority of which were reported as performing, by KKB to its subsidiary BTA, which afterwards ceded its banking licence and will operate as a distressed asset management company once it is divested by KKB in the near future; and (ii) KKB's resultant exposure to BTA, equal to 3.5x KKB's end-1H15 Fitch Core Capital (FCC). Other factors that contribute, albeit to a lesser extent, to Fitch's negative view of KKB's asset quality prospects are i) a currently more challenging operating environment for asset recoveries, including real estate assets, as a result of the moderate slowdown in the Kazakh economy; and (ii) the ab the National Bank of Kazakhstan), boosted by PLF funding injection, were equal to a high 35% of the bank's customer deposits or 25% of its total liabilities at end-1H15, although a significant share of these may be used to finance credit growth. Its upcoming USD294m eurobond repayment, due in November 2015, is equal to a small 7% of liquid assets at end-1H15. KEY RATING DRIVERS - KKB'S SUPPORT RATING (SR) AND SUPPORT RATING FLOOR (SRF) Fitch has affirmed the bank's '5' SR and revised its SRF to 'No Floor' from 'B-'. The SRF revision reflects our opinion that solvency support for the bank from the Kazakh authorities, in an amount sufficient to address the bank's asset quality problems, cannot be relied upon. At the same time, Fitch believes that moderate capital assistance (as evidenced by the PLF contribution) and continued regulatory forbearance remain possible, and liquidity support, at least in local currency, is likely. KEY RATING DRIVERS - KKB'S SUBORDINATED DEBT The downgrade of the subordinated and perpetual debt ratings reflects that on KKB's VR. This is because the respective debt are notched down by once and twice from the bank's VR, reflecting weak recovery prospects in case of default. KEY RATING DRIVERS - BTA BANK AND MKB The downgrade of BTA reflects its disposal by KKB, and the entity's weak asset quality and capitalisation. The Rating Watch Positive (RWP) on BTA's ratings had reflected the potential an upgrade of the bank in case of a merger, or closer integration with, KKB. As a result, BTA is no longer considered to be relevant to Fitch's analytical coverage, leading to today's withdrawal. We have withdrawn MKB's ratings without affirmation because the issuer has chosen to stop participating in the rating process, and Fitch will therefore no longer have sufficient information to maintain the ratings. Fitch will no longer provide ratings or analytical coverage for BTA or MKB. RATING SENSITIVITIES - KKB The Negative Outlook on KKB's Long-term IDRs reflects the potential for these ratings and the bank's VR to be downgraded in case of a further weakening of the bank's capitalisation resulting from (i) negative pre-impairment profitability (net of accrued interest); or (ii) increased provisioning requirements on problem exposures. The Outlook could be revised to Stable if the capital position stabilises as a result of reasonable performance or further moderate capital support from the Kazakh authorities. Any downgrade of KKB's Long-term IDRs and VR would also be reflected in changes in the bank's debt ratings. RATING SENSITIVITIES - KKB'S SUBORDINATED DEBT The ratings are sensitive to the same considerations that would affect KKB's VR. The rating actions are as follows: KKB Long-Term foreign and local currency IDRs: downgraded to 'B-' from 'B'; Outlook Negative Short-Term foreign and local currency IDRs: affirmed at 'B' Viability Rating: downgraded to 'b-' from 'b' Support Rating: affirmed at '5' Support Rating Floor: revised to 'No Floor' from 'B-' Senior unsecured long-term debt rating (including that of Kazkommerts International BV): downgraded to 'B-' from 'B'; Recovery Rating 'RR4' Senior unsecured short-term debt rating: affirmed at 'B' Subordinated debt rating: downgraded to 'CCC' from 'B-'; Recovery Rating 'RR5' KAZKOMMERTS FINANCE 2 BV Perpetual debt rating: downgraded to 'CC' from 'CCC'; Recovery Rating 'RR6' BTA Bank Long-Term foreign and local currency IDRs: downgraded to 'CCC' from 'B-'; removed from RWP; withdrawn Short-Term foreign and local currency IDRs: downgraded to 'C' from 'B'; withdrawn Viability Rating: affirmed at 'ccc'; withdrawn Support Rating: affirmed at '5'; removed from RWP; withdrawn MKB Long-term foreign currency IDR: 'CCC'; withdrawn Short-term foreign currency IDR: 'C'; withdrawn National Long-term rating: 'B(rus)'; withdrawn Viability Rating: 'ccc'; withdrawn Support Rating: '5'; withdrawn. Contacts: Primary Analysts Roman Kornev (KKB, BTA) Director +7 495 956 7016 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow 115054 Maria Kuraeva (MKB) Analyst +7 495 956 5575 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow 115054 Secondary Analysts Evgeny Konovalov (KKB, BTA) Associate Director +7 495 956 9932 Aslan Tavitov (MKB) Associate Director +7 495 956 7065 Committee Chairperson James Watson Managing Director +7 495 956 6657 Contact for media in Moscow: ЮлYulia Belskaya von Tell, Moscow, tel. + 7 495 956 9908/9901, julia.belskayavontell@fitchratings.com [2015-08-14]