S and P Global Ratings lowered to ‘CCC+’ from ‘B-‘ its long-term counterparty credit rating on Kazakhstan-based Kazkommertsbank JSC (KKB), the agency said May 17.
At the same time, S and P lowered the Kazakhstan national scale rating to ‘kzB-‘ from ‘kzBB-‘. The agency has also affirmed the ‘C’ short-term rating on KKB. The outlook is negative.
At the same time, S and P lowered the rating on the subordinated debt of the bank to ‘CCC-‘ from ‘CCC’ and on the junior subordinated debt to ‘CC’ from ‘CCC-‘.
The downgrade reflects S and P’s view that KKB is experiencing increasing pressure from a combination of external and internal factors.
“The bank’s liquidity and capitalization ratios suggest that its short-term (under one year) prospects remain assured,” S and P said. “However, S and P thinks that KKB is increasingly vulnerable in the long term, as shown by a loss the bank made in 2015 (despite the transfer of nonperforming assets to BTA). Additionally, the operating environment is likely to remain weak, and S and P has seen no clear progress from management in setting out a credible strategy to ensure the bank’s long-term health.”
S and P continues to see downside risks to this projection, given the bank’s large problem loan portfolio and the embedded currency risk–almost half of KKB’s loan book is denominated in foreign currency.
At this stage, S and P anticipates no improved capacity at the bank to recover problem loans.
The negative outlook on KKB reflects S and P’s opinion that the bank’s asset quality and profitability will remain strained, and could still deteriorate further in the coming 12-18 months.
This view takes into account KKB’s still-sizable portfolio of NPLs, and S and P’s view that already weak macroeconomic conditions are unlikely to improve soon. The latter is likely to depress margins and sustain foreign currency-related risks for KKB and its clients. In addition, S and P does not yet see a credible strategy to restore the bank’s health in the long term.
S and P would likely lower the ratings on the bank if S and P observed notable deterioration in its short-term prospects, for example, if its liquidity and funding metrics weakened or if it came close to its minimum regulatory capital requirements. S and P could also lower the ratings if, for example, S and P saw reducing willingness or ability of the government to support KKB. This could be linked to us lowering S and P’s sovereign ratings on Kazakhstan.
S and P could revise the outlook to stable if the bank’s operating conditions stabilize and S and P see good execution from the new management team. Notably, S and P would look for stabilizing asset quality, a return to profitability, and the delivery of a strategy that will bolster the bank’s long-term health.