OREANDA-NEWS. Fitch Ratings has published Eximbank Kazakhstan's (Exim) Long-term Issuer Default Ratings (IDRs) of 'B-'. The Outlooks are Stable. A full list of rating actions is available at the end of this rating action commentary.

KEY RATING DRIVERS
IDRS, NATIONAL RATINGS, VIABILITY RATING AND SENIOR DEBT
Exim's IDRs are based on the bank's Viability Rating (VR), which reflects a narrow franchise, weak asset quality, high reliance on shareholders for funding and modest profitability. The ratings also take into account currently solid capital ratios.

Exim is a part of a broader business of its shareholders, who are also majority owners of one of the largest private electricity companies in Kazakhstan, Central-Asian Electric-Power Corporation (CAEPCo, BB-/Outlook Negative). Fitch does not explicitly factor in support from CAEPCo into Exim's ratings, but the bank's credit profile benefits from the shareholder's ability to originate business for the bank on both sides of its balance sheet.

Exim's asset quality is assessed as weak. Although its reported NPL ratio was low at 0.8% at end-2014, some 45% of gross loans were restructured, about half of which is financing of real estate assets, which generate little cash-flow at present. Reserves covered only 46% of NPLs and restructured loans, while unreserved part accounted for a high 1.6x of Fitch core capital (FCC) at end-2014.

Additionally, there are some 5% of gross loans (0.2x FCC), which, although technically performing and non-restructured, are considered relatively high-risk due to weak collateral and/or poor borrower financials. Further 16% of gross loans (0.8x FCC) were provided to companies related to the energy business of Exim shareholders, although these are secured by state contracts and assessed by Fitch as moderate risk.

Profitability is weak with return on assets (ROA) and return on equity (ROE) for 2014 of 0.5% and 2% respectively. The quality of earnings is weak since around 80% of net income generated in 2014 was represented by accrued but not received interest income. Fitch estimates that on a cash pre-impairment basis Exim incurred a small loss in 2014. Profitability remained flat in 1H15, based on the regulatory accounts, but cash generation from the loan book has improved.

Capitalisation is a positive rating factor with Tier 1 and total capital ratios standing, respectively, at a high 22.3% and 26.1% at end-1H15. Fitch estimates that capital buffer is sufficient for the bank to fully cover unreserved high-risk restructured loans with reserves without breaching the minimum regulatory requirements.

Exim is predominantly funded by customer accounts, of which 61% are from shareholders' companies and a further 13% are deposits serving as collateral for certain loans - both of these funding sources are fairly stable. Liquidity buffer, net of potential wholesale repayments, covered a reasonable 60% of non-related customer accounts at end-1H15. Foreign currency liquidity is tight, but the risk is mitigated by the absence of foreign currency debt repayments over the next year.

RATING SENSITIVITIES
IDRS, NATIONAL RATINGS, VR AND SENIOR DEBT

Significant improvement of asset quality metrics while maintaining solid capital position, and greater funding diversification may lead to a rating upgrade. Weakening in the liquidity profile and asset quality may lead to a rating downgrade.

SUPPORT RATING and SUPPORT RATING FLOOR - KEY RATING DRIVERS AND RATING SENSITIVITIES

The Support Rating '5' reflects Fitch's view that support from the bank's private shareholder, although possible, cannot be reliably assessed. The Support Rating Floor of 'No Floor' is based on Exim's low systemic importance which is not expected to be revised over the next year.

The rating actions are as follows:
Long-term foreign and local currency IDRs: published at 'B-'; Stable Outlook
Short-term foreign-currency IDR: published at 'B'
National Long-term rating: published at 'B+(kaz)'; Stable Outlook
Viability Rating: published at 'b-'
Support Rating: published at '5'
Support Rating Floor: published at 'No Floor'
Senior unsecured debt ratings: published at 'B-'/'B+(kaz)'; Recovery Rating at 'RR4'