OREANDA-NEWS. December 08, 2011. Moody's Investors Service has affirmed the following ratings of Development Bank of Kazakhstan: the Baa3 long-term foreign currency issuer rating, the provisional (P)Baa3 foreign currency rating assigned to the bank's USD 2 billion European Medium-Term Note programme, and the Baa3 foreign currency debt rating assigned to the bank's senior unsecured USD 777 million five-year bond issued under this programme, reported the press-centre of KASE.

Moody's affirmation of Development Bank of Kazakhstan's ratings is based on the bank's audited financial statements for 2010 prepared under IFRS, and its H1 2011 unaudited results prepared under IFRS.

RATINGS RATIONALE

"Moody's affirmation of Development Bank of Kazakhstan's ratings, with a stable outlook, reflects the bank's solid capital buffer and liquidity cushion as well as high probability of government support in the event of need," says Maxim Bogdashkin, a Moody's Assistant Vice-President and lead analyst for the bank.

Development Bank of Kazakhstan's relatively good capital cushion - with the ratio of shareholder's equity to total assets amounting to around 25% as at H1 2011, and high loan loss reserves of around 28% of total loans - provide some protection against further losses that are likely to materialise from its risky loan portfolio. Despite Development Bank of Kazakhstan's high reliance on wholesale market funding that constitutes up to 90% of its liabilities, Moody's sees remote refinancing risk for the bank due to the long-term nature of its funding. In addition, the bank maintains a large cushion of liquid assets on its balance sheet (65% of total assets).

At the same time, Moody's notes that Development Bank of Kazakhstan's ratings remain constrained by the bank's business model of a government-directed, nationwide development bank that (i) implies weak asset quality and profitability due to the provision of early-stage financing to long-term investment projects, and (ii) resulted in the bank's high credit risk concentration, with 20 largest exposures exceeding 2x Tier 1 capital. Although the loans were granted to the largest local business groups and are relatively well collateralised, the rating agency expects Development Bank of Kazakhstan's asset quality to continue to gradually deteriorate in the medium term.

In view of the above-mentioned risks that are embedded into Development Bank of Kazakhstan's mandate, as well as its high susceptibility to political and social pressures (rather than business necessities), the government's ongoing and extraordinary support is among key factors supporting the bank's issuer and debt ratings. As a result, Moody's cautions that if the bank's capital is allowed to deteriorate significantly from the current level, negative pressure could be exerted on its ratings.