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Standard & Poor’s Ratings Services has assigned its ‘BB+’ senior unsecured debt rating to Development Bank of Kazakhstan’s (DBK; BB+/Stable/B) upcoming US$100mn Eurobond due November 12, 2013, to be issued under the bank’s US$400mn euro MTN programme.

“The ratings on DBK reflect the bank’s clearly defined and strategic public policy role for the government of the Republic of Kazakhstan (foreign currency BB+/Stable/B; local currency BBB-/Stable/A-3) and its 100% state ownership, which ensure strong implicit government support,” says Standard & Poor’s credit analyst Luc Marchand.

DBK is the primary vehicle in providing long-term credit to the non-extractive sectors of the Kazakh economy, one of the main strategic development targets of the government. The government is maintaining an arm’s length relationship with DBK and does not guarantee the bank’s obligations, although it keeps the bank well capitalised relative to the size of its business.

In 2003, the government renewed its support to the bank by increasing its capital to Kt37.7bn (US$250mn). The increase in DBK’s capital is an integral part of the first stage of the 2003-15 strategic development programme. The government is also closely involved in defining DBK’s strategy and controls the bank through the board of directors. The deputy head of the Presidential Administration of Kazakhstan, Yerzhan Utembayev, heads the board. Even though the bank is not subject to the National Bank of Kazakhstan’s (NBK) prudential regulation, it complies with most of the NBK’s requirements and regularly reports its financial performance for scrutiny.

In view of the substantial development needs in Kazakhstan’s infrastructure and manufacturing sectors, DBK has a vital role to play for many years to come. Total assets amounted to Kt57.6bn at year-end 2002, still mainly reflecting the bank’s equity capital. Loan commitments have been slowly built up since the inception of the bank, and at year-end 2002 DBK had a small portfolio of disbursed investment projects and export operation loans, with a total volume of US$77.2mn. The bank is expected to grow its loan portfolio prudently in a high-risk market environment. Although DBK’s memorandum on credit policy limits total liabilities to 600% of the bank’s capital, management policies have capped the bank’s leverage at a borrowed-funds-to-capital ratio of 100%.

“The stable outlook on DBK reflects Standard & Poor’s view that government support will remain strong, as demonstrated by the expected further increase of about US$150mn in the bank’s capital in 2004-05,” says Marchand. “Standard & Poor’s expects no changes in the policy and regulatory framework that would weaken the bank’s key policy role in the government’s development plans over the foreseeable future. A deviation from DBK’s policy role or signs of weakening government support, however, would probably result in downward pressure on the ratings.”