19.11.2015, 13:37
S&P affirms long term and shirt term credit ratings of Bank RBK at В-/С; and revises outlook from positive to stable
OREANDA-NEWS. Standard & Poor's Ratings Services revised its outlook on Kazakhstan-based Bank RBK to stable from positive and affirmed its 'B-/C' long- and short-term counterparty credit ratings on the bank. At the same time, we lowered our Kazakhstan national scale rating on the bank to 'kzBB-' from 'kzBB'.
The outlook revision reflects our view that Bank RBK's aggressive growth strategy may lead to the accumulation of significant risks going forward. Although coming from a low base, the bank's assets increased by 89x between 2011- 2014, significantly exceeding the Kazakh banking sector's average asset growth, and the bank increased its asset base by 48% in the first nine months of 2015 when economic growth in Kazakhstan was under pressure and many other local banks were deleveraging.
We expect that the quality of the bank's loan portfolio will deteriorate in the next 12-18 months, with nonperforming loans (defined as loans overdue by more than 90 days) increasing to 5.0%-7.0% from 2.8% at mid-2015 (which is currently below the Kazakh banking sector's average). This will likely result from the bank's maturing loan portfolio and the deteriorating creditworthiness of the bank's borrowers, given that the Kazakh economy is slowing down. The bank's loan book is highly concentrated, with corporate customers making up 80% of loans as of Sept. 1, 2015. The top 20 borrowers accounted for 39% of overall loans and 3.4x of the bank's total adjusted capital as of the same date, which is very high in global comparison, although comparable to local peers.
We also expect that the bank's capital buffers will remain constrained, despite significant capital injections from shareholders, in view of its rapidly increasing risk-weighted assets. However, we estimate that the bank's risk-adjusted capital ratio before adjustments for concentration and diversification will remain between 6.5%-7.0% in the next 12-18 months in our base-case scenario, which includes the bank's planned sizable capital injections over the next two years.
The stable outlook on Bank RBK reflects our expectation that pressure on the bank's creditworthiness from increasing credit costs and narrowing margins, due to depressed economic conditions in the country, will likely be balanced over the next 12-18 months by significant support from shareholders in the form of capital injections and funding resources.
We could take a negative rating action if, contrary to our expectations, Bank RBK did not receive the planned capital injections at the end of 2015 and in 2016 while its risk appetite remained high or if asset quality deteriorated markedly, with nonperforming loans increasing to more than 7% of total loans in the next 12-18 months, resulting in elevated credit costs and weaker capital ratios. We could also downgrade the bank if its adequate liquidity deteriorated materially as a result of unexpected deposit outflows or the bank's unwillingness to maintain sufficient liquidity cushions.
We consider a positive rating action is unlikely in the next 12-18 months, given our view of the increasing economic and industry risks in the Kazakh banking sector.
The outlook revision reflects our view that Bank RBK's aggressive growth strategy may lead to the accumulation of significant risks going forward. Although coming from a low base, the bank's assets increased by 89x between 2011- 2014, significantly exceeding the Kazakh banking sector's average asset growth, and the bank increased its asset base by 48% in the first nine months of 2015 when economic growth in Kazakhstan was under pressure and many other local banks were deleveraging.
We expect that the quality of the bank's loan portfolio will deteriorate in the next 12-18 months, with nonperforming loans (defined as loans overdue by more than 90 days) increasing to 5.0%-7.0% from 2.8% at mid-2015 (which is currently below the Kazakh banking sector's average). This will likely result from the bank's maturing loan portfolio and the deteriorating creditworthiness of the bank's borrowers, given that the Kazakh economy is slowing down. The bank's loan book is highly concentrated, with corporate customers making up 80% of loans as of Sept. 1, 2015. The top 20 borrowers accounted for 39% of overall loans and 3.4x of the bank's total adjusted capital as of the same date, which is very high in global comparison, although comparable to local peers.
We also expect that the bank's capital buffers will remain constrained, despite significant capital injections from shareholders, in view of its rapidly increasing risk-weighted assets. However, we estimate that the bank's risk-adjusted capital ratio before adjustments for concentration and diversification will remain between 6.5%-7.0% in the next 12-18 months in our base-case scenario, which includes the bank's planned sizable capital injections over the next two years.
The stable outlook on Bank RBK reflects our expectation that pressure on the bank's creditworthiness from increasing credit costs and narrowing margins, due to depressed economic conditions in the country, will likely be balanced over the next 12-18 months by significant support from shareholders in the form of capital injections and funding resources.
We could take a negative rating action if, contrary to our expectations, Bank RBK did not receive the planned capital injections at the end of 2015 and in 2016 while its risk appetite remained high or if asset quality deteriorated markedly, with nonperforming loans increasing to more than 7% of total loans in the next 12-18 months, resulting in elevated credit costs and weaker capital ratios. We could also downgrade the bank if its adequate liquidity deteriorated materially as a result of unexpected deposit outflows or the bank's unwillingness to maintain sufficient liquidity cushions.
We consider a positive rating action is unlikely in the next 12-18 months, given our view of the increasing economic and industry risks in the Kazakh banking sector.
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