S&P revised outlook of Kazakhstani banks to "negative"
Almaty. February 27. KazTAG - Standard & Poor's Ratings Services took various rating actions on seven Kazakhstan-based financial institutions.
"We revised the outlooks to negative from stable on JSC SB Alfa-Bank, Kaspi Bank JSC, and PNB-Kazakhstan, and affirmed our long- and short-term counterparty credit ratings on these banks," said the agency.
The agency also revised the outlook to stable from positive on JSC Eurasian Bank and affirmed the long- and short-term counterparty credit ratings.
"We 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," said the agency.
At the same time, S&P lowered the Kazakhstan national scale rating on JSC SB Alfa-Bank to 'kzBBB-' from 'kzBBB'. "We also lowered the national scale rating on Kaspi Bank JSC to 'kzBBB+' from 'kzA-'," said the agency.
According to the agency the rating actions follow the decision to downgrade Kazakhstan ratings. "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. As a result, under our methodology for banking industry country risk, we revised our view of the industry risk trend for Kazakh banks to negative from stable. This reflects our opinion of the Kazakh banking system's weakening funding profile," said the agency.
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% of GDP, more than 50% of revenue, and 60% of exports. Consequently, we have sharply lowered our GDP growth outlook for Kazakhstan to 1.5% in 2015 and 2% in 2016, from 4.3% and 4.5%, respectively. Growth prospects are also dampened by the expected impact on consumer demand--the key growth driver in recent years--from currency devaluation and external factors such as Russia's recession. We now forecast a current account deficit of more than 4% of GDP over 2015-2016. "We expect 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," said the agency.
"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 message reports.
The agency 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. "We expect that the very high volume of nonperforming loans (NPLs) in the Kazakh banking system--24% as of year-end 2014--will continue to decline gradually in 2015, partly due to more proactive initiatives of the Kazakhstan National Bank," said the agency.
The experts believe the Kazakh economy has been in a "correction" phase since 2011, during which banks' NPLs and restructured loans have remained the highest among peers and have not declined materially, while credit losses have increased. In addition, it is expected that the unwinding of large imbalances, caused by the credit and real estate boom, will likely continue to constrain the banking sector's development.
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," reads the message.
"Our view of increased industry risk puts pressure on our anchor, the starting point in assigning an issuer credit rating to a bank, which is 'bb-' for banks operating predominantly in Kazakhstan. 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,' said S&P.
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 risks.