OREANDA-NEWS. December 06, 2011. Fitch Ratings has affirmed Kazakhstan-based Alliance Bank JSC's ALLBy.LU (Alliance) Long-term Issuer Default Rating (IDRs) at 'B-' and Viability Rating (VR) at 'cc'. The Outlooks on the Long-term IDRs are Stable. A full list of rating actions is at the end of this commentary, reported the press-centre of KASE.

Alliance's IDRs reflect Fitch's assessment of the possibility of support from the Kazakh authorities. This view is primarily based on the bank's ultimate government ownership and the reputational risk of the bank's repeated default. In addition, the agency views positively the apparently greater willingness of the bank's controlling shareholder, the national welfare fund Samruk Kazyna (SK), to help improve the bank's financial standing, compared with another recently restructured bank in Kazakhstan, BTA Bank ('CCC'/'f'). Fitch also takes into account the smaller potential cost of support for Alliance, relative to BTA, as a result of the much smaller size of its balance sheet (three times less than BTA at end-Q311), negative equity (14 times less) and external debt (four times less).

At the same time, Fitch also notes that assistance provided to Alliance to date has so far been insufficient to restore the bank to solvency. Furthermore, the Kazakh authorities have yet to make any clear statements that they would support Alliance in all circumstances, and the current review of restructuring and/or recapitalisation options at BTA suggests that support would not be automatically extended to Alliance in case of a further deterioration in its financial position.

The affirmation of Alliance's 'cc' VR reflects the bank's still very weak stand-alone profile, given the negative equity and pre-impairment losses reported in its unaudited end-Q311 accounts. At the same time, the agency views positively the recent improvements in the bank's solvency and performance. In contrast to BTA, Fitch believes that it is possible, albeit still very challenging, for the bank to restore its viability without requiring further external support.

Alliance's reported negative equity fell to KZT23.5bn at end-Q311 from KZT103.6bn at end-H111, primarily as a result of SK's approval of a large reduction in dividend payments on the bank's preference shares in August 2011, which reduced the carrying value of the liability represented by the shares by KZT62bn. At the same time, the agency expresses concern about the KZT14bn gain (and consequent reduction in negative equity) booked in Q311 as a result of a sale of retail non-performing loans (NPLs) at above net book value. Given the apparently non-market valuation of the sold portfolio, Fitch believes that the buyer is likely to have recourse to resell the portfolio back to Alliance (the agency's base case assumption).