Standard & Poor’s Ratings Services has raised its long-term counterparty credit and certificate of deposit ratings on Kazakhstan-based bank Kazkommertsbank (JSC) (KKB) to ‘BB-‘ from ‘B+’. The rating action reflects the improved economic environment in the
At the same time, Standard & Poor’s affirmed its ‘B’ short-term counterparty credit and certificate of deposit ratings on the bank. In addition, the long-term senior unsecured debt rating on KKB’s subsidiary
“The rating action also reflects the EBRD’s decision to acquire a 15% minority stake in KKB’s capital,” says Standard & Poor’s credit analyst Magar Kouyoumdjian. “The expected presence of the EBRD should help improve KKB’s corporate governance, funding, and capitalisation.”
The reversal of the bank’s policy on financing equity investments of its sister company, Central Asian Industrial Investments (CAII), has removed some risk, although the same individuals own KKB and CAII and, therefore, the bank remains indirectly vulnerable to any potential financial needs of its owners.
As a corporate bank with a limited branch network, KKB still relies on wholesale funding to a great extent. This factor is a weak point in the bank’s credit profile, along with concentrations in liabilities.
In an effort to counter this problem, however, and because of its intention to enter the high end of the retail market in Kazakhstan, KKB has expanded customer deposits dramatically since 2000. It has also been actively raising international debt to lengthen the maturity profile of its funding base.
KKB has resolved its two largest problematic related-party loans with CAII and Kazakhstan-based airline Air Kazakhstan, and, therefore, reduced the concentration of its loan portfolio to single-party risk.
KKB’s strong commercial position and good earnings profile place it in a good position to prosper from economic growth in the country.
“The bank has demonstrated continued good asset quality, even through turbulent times, and seems committed to keeping clear of group investments in industrial concerns,” adds Kouyoumdjian. “The prospect for higher credit ratings will largely be dependent on reduced concentrations in wholesale funding and lending, stronger capitalisation, and the stabilisation of loan growth.”