Today.Az » World news » Industry risks of Kazakh banks increase
27 February 2015 [15:58] - Today.Az
Standard & Poor's Ratings Services took various rating actions on
seven Kazakhstan-based financial institutions due to rising industry
risk, the rating agency reported on Feb. 27.
S&P revised the outlooks to negative from stable on JSC SB
Alfa-Bank, Kaspi Bank JSC, and PNB-Kazakhstan, and affirmed the long-
and short-term counterparty credit ratings on these banks. The agency
also revised the outlook to stable from positive on JSC Eurasian Bank
and affirmed the long- and short-term counterparty credit ratings.
Moreover S&P affirmed the long- and short-term counterparty credit
ratings and maintained a stable outlook on ForteBank JSC (formerly known
as Alliance Bank JSC), KazInvestBank, and Kazakh Agrarian Credit Corp.
At the same time, the agency lowered the Kazakhstan national scale
rating on JSC SB Alfa-Bank to 'kzBBB-' from 'kzBBB' and lowered the
national scale rating on Kaspi Bank JSC to 'kzBBB+' from 'kzA-'.
“Today's rating actions follow our decision to downgrade Kazakhstan. In
our opinion, industry risks for Kazakh banks have increased because of
the slowdown of the Kazakh economy, on the back of the pronounced drop
in international oil prices, and further devaluation of the Kazakhstani
tenge. This reflects our opinion of the Kazakh banking system's
weakening funding profile,” S&P said.
The sharp decline in oil prices greatly affects the outlook for
Kazakhstan's economic growth and external and fiscal imbalances, given
the Kazakh economy's high dependence on oil. The Kazakh oil sector
accounts for an estimated 20-30 percent of GDP, more than 50 percent of
revenue, and 60 percent of exports, according to S&P. The agency
expects that the National Bank of Kazakhstan will either allow a gradual
depreciation of the tenge or undertake another devaluation later this
year, to accommodate lower oil prices and to ease the tenge's
appreciation against the Russian ruble.
“Our assessment of the economic risk trend for Kazakh banks remains
stable. The stable trend reflects the already very high economic risks
in a global comparison and the banking sector's only modest exposure to
the oil sector. We expect reduced demand for credit from small and
midsize enterprises and consumers, which tend to be the banks' core
lending customer base, in view of lower GDP growth,” the agency said.
S&P expects that credit risk in the economy will remain extremely
high, taking into account Kazakh banks' history of aggressive
underwriting standards and the country's weak payment culture and rule
of law. The agency expects that the very high volume of nonperforming
loans (NPLs) in the Kazakh banking system—24 percent as of year-end
2014--will continue to decline gradually in 2015, partly due to more
proactive initiatives of the Kazakhstan National Bank.
The agency noted that in recent months, Kazakh banks have suffered from a
lack of tenge liquidity due to the conversion of tenge deposits into
foreign currency. To hedge the widening foreign currency asset and
liability mismatches, Kazakh banks have had to use costly foreign
currency swaps with the National Bank of Kazakhstan, which has
negatively affected their cost of funds.
“We expect to see lower savings rates among corporate and retail
depositors in 2015, in view of the reduced economic growth prospects and
our expectation of the tenge's devaluation. We anticipate that
increased retail deposit volatility and the dollarization of deposits
will continue due to depositors' weakening confidence in the Kazakh
economy and the tenge. Smaller banks will be particularly vulnerable to
flight to quality and possible panic-driven deposit outflows. By our
estimates, state-related companies are significant depositors with
Kazakh commercial banks, accounting for over one-quarter of total
deposits. We expect a squeeze on their deposit bases given the lower GDP
growth,” S&P said.
The increased industry risk puts pressure on the anchor, the starting
point in assigning an issuer credit rating to a bank, which is 'bb-' for
banks operating predominantly in Kazakhstan? According to S&P.
“We have consequently revised our outlooks on Alfa-Bank, Kaspi Bank, PNB
Kazakhstan, and Eurasian Bank, incorporating our opinion that these
banks' capital buffers are likely to be affected by the increasing
industry risks,” the agency said.
Meanwhile the stand-alone credit profiles for, and consequently the
issuer credit ratings on, KazInvestBank, ForteBank, and Kazakh Agrarian
Credit Corp are not immediately affected by the increasing industry