OREANDA-NEWS. Fitch Ratings has assigned Bank of Astana JSC (BoA) Long-term Issuer Default Ratings (IDRs) of 'B' with a Stable Outlook. A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS - IDRS, VIABILITY RATING (VR), NATIONAL LONG-TERM RATING
BoA's Long-term IDRs of 'B' are driven by its standalone credit profile, as reflected in its 'b' VR. The latter is currently constrained by the bank's small, albeit growing, franchise (below 1% of sector assets and loans), high concentrations on both sides of the balance sheet, and a short track record (since 2013) of operations under new shareholders and with the revised SME/retail-focused strategy.

BoA's current asset quality metrics are somewhat better than sector averages, but its loan book is highly unseasoned following the recent rapid growth (63% CAGR for 2012-2014). At end-1H15, NPLs (loans more than 90 days overdue) stood at around 7.3% of gross loans and were 84% covered by reserves. However, restructured loans (mostly in the agriculture and services sectors) amounted to a further 7% at the same date.

The corporate loan book is highly concentrated, with the 25 largest exposures comprising around 66% of gross corporate loans (2.3x FCC) at end-4M15. Loans to construction companies accounted for at least 21% of the gross corporate book, or 0.7x FCC. Fitch considers these to be relatively risky due to high non-completion risks and, in some instances, rather weak collateral.

Foreign currency loans amounted to 32% of gross loans at end-8M15 and may be subject to deterioration as a result of recent tenge devaluation, as most borrowers do not have foreign currency revenues.

BoA's capitalisation is adequate, with a total regulatory capital adequacy ratio of 11.7% at end-8M15 (capital is almost entirely composed of Tier 1). These figures already take into account the devaluation-driven boost of risk-weighted assets.

Fitch estimates that at end-8M15 BoA's additional loss absorption capacity was modest at around 5% of gross loans. However, given BoA's moderate growth plans for 2016 and the planned KZT4.5bn equity injection in December 2015 (around 24% of end-8M15 equity), its capital should be preserved, at least in the near term.

BoA's profitability is reasonable, with 1.8% ROAA and 12% ROAE in 1H15 (annualised), but weakened somewhat, as the cost of funding increased (to 5.2% in 1H15 from 2.5% in 2013). BoA's pre-impairment profit provides solid loss-absorption capacity (around 3% of average gross loans in 1H15, annualised). The bank made a moderate gain on devaluation due to a small long foreign currency position.

BoA's funding profile is undermined by very high concentrations and low diversification. At end-4M15, the bank's 20 largest customers provided around 94% of total customer funding or 72% of liabilities. State companies accounted for at least 58% of the total customer funding or 45% of total liabilities at that date. At end-8M15, BoA's total available liquidity covered around one-third of its customer accounts. At the same time, Fitch views the bank's liquidity as only moderate due to high concentrations in its deposit base.

KEY RATING DRIVERS - SUPPORT RATING (SR) AND SUPPORT RATING FLOOR (SRF)
BoA's SRF of 'No Floor' and '5' Support Rating reflect its limited scale of operations and market share. Thus any extraordinary direct capital support from the Kazakhstani authorities cannot be relied upon, in Fitch's view. Support from the bank's private shareholders also cannot be relied upon, in the agency's view.

RATING SENSITIVITIES
IDRS, VR, NATIONAL LONG-TERM RATING
An extended track record of sound performance under new shareholders and successful implementation of the new strategy would be credit positive. A strengthening of BoA's franchise while maintaining reasonable asset quality and margin of safety would also be positive for the bank's ratings. A downgrade could result from a notable deterioration of asset quality, capital depletion, and/or liquidity squeeze.

SUPPORT RATING (SR) AND SUPPORT RATING FLOOR (SRF)
Changes to the bank's SRF and SR are unlikely in the foreseeable future, although the SR could be upgraded in case of the acquisition of BoA by a stronger financial institution (not Fitch's base case expectation at the moment).

The rating actions are as follows:

Long-term foreign and local currency IDRs: assigned at 'B', Outlook Stable
Short-term foreign and local currency IDRs: assigned at 'B'
National Long Term Rating: assigned at 'BB(kaz)', Outlook Stable
Viability Rating: assigned at 'b'
Support Rating: assigned at '5'
Support Rating Floor: assigned at 'No Floor'.