OREANDA-NEWS. On August 10, 2007 Fitch Ratings has affirmed Kazakhstan-based Eurasian Bank's ("EBK") ratings at Long-term Issuer Default ("IDR") 'B-' (B minus), Short-term IDR 'B', Support ?' and Individual D/E'. The Support Rating Floor is affirmed at 'No Floor'. The Outlook for the Long-term IDR is Stable, reported the press-centre of KASE.

The ratings reflect EBK's high customer concentration on both sides of the balance sheet, its relatively undiversified funding base which is to a large degree reliant on related companies, and rapid loan growth in new segments where it has a limited track record. However, they also take into account the favourable impact of the growing retail lending business on franchise sustainability and balance sheet diversification, and adequate asset quality to date.

EBK continued to perform soundly in 2006 and in H107 (the latter based on local accounts), due to low-cost funding from related parties and a modest operating cost base. Fitch expects EBK's stand alone pre-consolidation (see below) performance to decline, however, owing to a reduction in benefits from related-party funding and the expansion of its branch network.

The loan book grew by a large 43% in 2006 and further by 36% in H107, mainly due to the expansion in retail lending. This reached a considerable 36% of gross loans at end-2006. Concentration by borrower was still high, although increased lending to individuals and SMEs has helped to gradually reduce it. Related party funding declined only marginally as a proportion of liabilities in 2006, and still contributed a substantial 28% of these at year end.

Capitalization was adequate at end-2006, thanks to timely equity injections and full retention of earnings. However, EBK plans a substantial reduction of its regulatory total capital ratio to 12% at end-2007 from 20% at end-2006 (18% end-H107). In Fitch's view, the targeted level is modest given the large share of Tier 2 capital, projections for continuous fast asset growth and notable business concentrations.

Ratings upside could result from further growth of the bank's retail franchise, which would reduce concentration, and a noticeable diversification of the funding base, provided adequate capitalisation is maintained. Downward rating pressure could be triggered by asset quality problems resulting from the rapid growth of retail lending, in which the bank has a limited track record.

At end-H107, EBK was the 10th-largest commercial bank in Kazakhstan, with 1,6% of banking system assets. Formerly a corporate bank, EBK started to develop its retail franchise in 2005.

The bank is owned by three business partners, whose other major assets include metals, mining and energy companies that jointly contribute up to 5% of national GDP. In its H107 IFRS accounts, EBK expects to consolidate Eurasian Insurance Company ("EIC"), the largest domestic non-life insurer that held around an 18% market share of premiums written in 2006 and was previously indirectly owned by the bank's shareholders. At end-2006, EIC's insurance reserves made up USD97m, equal to less than 10% of the bank's assets, but it generated substantial net income of USD34m (equal to 1.1x of EBK's).