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Standard & Poor’s Ratings Services has raised its long and short-term counterparty credit and certificate of deposit ratings on Kazakhstan-based Halyk Savings Bank of Kazakhstan (Halyk) to ‘B+/B’ from ‘B/C’. The outlook is stable.

“The rating action reflects the improved, although still high risk, economic environment in Kazakhstan, the bank’s strengthened financial and business profile following privatisation, its dominant position in retail banking, ample liquidity from customer deposits, and its systemic importance as the former savings bank,” says Standard & Poor’s credit analyst Magar Kouyoumdjian.

Halyk is the third largest bank in Kazakhstan with assets of Kt194.4bn (US$1.25bn) at year-end 2002. The bank’s asset quality has improved considerably following its privatisation, with the writing off of inherited problematic loans and the granting of better quality new loans. The bank grew its loan portfolio more than 58.2% during 2002, both through direct lending and programs targeted at small and midsize enterprises (SMEs) from the European Bank for Reconstruction and Development (EBRD).

At year-end 2002, non-accrual loans accounted for only 0.5% of gross loans. Standard & Poor’s remains cautious, however, about the sustainability of the positive trend, due to the rather concentrated portfolio, risky economic environment, and still-high proportion of US dollar-denominated (or indexed) loans in its loan portfolio. Despite evidence indicating that the bank’s situation is improving as the economic climate also improves, provisions remain heavy to clean up problematic loans from the past. Provisioning costs were inflated in 2002, however, due to the prudent allocation of extraordinary revenues to provisions.

Following its privatisation and the appointment of a new management team, Halyk quickly began its transformation into a leaner, more competitive, and profit-oriented organisation. Halyk will retain its dominant position in the retail market despite losing market share to competition and certain benefits related to its former ties to the government.

“The potential for a higher credit rating depends on Halyk maintaining good asset quality, further cost optimisation, and developing profitable core revenues,” says Kouyoumdjian. “Higher ratings also hinge on stronger capitalisation and improvements in the still risky economic and financial environment in Kazakhstan .”