Fitch places Kazakh Halyk Bank on Rating Watch Negative
By Trend
The International Rating Agency Fitch Ratings has placed Halyk Bank of Kazakhstan's (HB) 'BB' Long-Term Issuer Default Ratings (IDRs) and its 'bb' Viability Rating on Rating Watch Negative, the rating agency said in a message March 10.
Fitch has also placed the 'CCC' Long-Term IDRs of
Kazkommertsbank (KKB) on Rating Watch Evolving and downgraded the
bank's Viability Rating to 'f' from 'ccc'.
The rating actions follow recent announcements by the banks and the
Kazakh authorities on HB's potential acquisition of a controlling
stake in KKB.
The Rating Watch Negative on HB's ratings reflects the possible
negative impact on HB's capitalization and asset quality as a
result of the potential acquisition of KKB.
Fitch expects that HB will only acquire KKB if the latter first
receives direct or indirect considerable financial support. The
National Bank of Kazakhstan has announced that such support is
likely to take the form of a purchase of KKB's problem assets by
the problem loan fund (PLF).
Notwithstanding this expected support, Fitch believes there is a
material risk that KKB's problem assets may not be fully removed
from the bank's balance sheet or adequately reserved prior to a
transaction. Senior country officials recently committed to
providing 2 trillion tenges to the PLF for subsequent problem asset
purchases, of which 1.1 trillion tenges has been provided. This
compares with a net exposure to BTA of 2.4 trillion tenges.
HB's capitalization could weaken significantly as a result of the
acquisition of KKB.
Potential additional provisioning needs on KKB's assets could
represent a further drag on HB's solvency, although this would
still be supported by HB's strong internal capital generation, in
Fitch's view.
Fitch does not expect any significant negative impact on HB's
strong funding and liquidity profile as a result of the
transaction. Any cash payment for KKB is likely to be small
relative to HB's liquidity buffer and Fitch does not expect
material volumes of KKB's debt to be accelerated as a result of any
acquisition. The consolidated loans/deposits ratio (assuming the
removal of the BTA exposure) would be about 64 percent, compared
with 79 percent at HB at end-3Q16.
The Rating Watch Negative on KKB's 'CCC' Long-Term IDRs reflects the potential for the ratings to be upgraded as a result of an acquisition by a higher-rated institution and the expected clean-up of the loan book and the potential for the ratings to be downgraded to 'RD' (Restricted Default) if any losses are imposed on senior creditors as part of the restoration of the bank's solvency (the authorities have given no indication that losses will be imposed). The ratings could also be downgraded in case of a hypothetical breakup of the deal and, hence, the collapse of the main financial rehabilitation scenario for KKB proposed by the authorities.
The downgrade of KKB's Viability Rating to 'f' from 'ccc'
reflects Fitch's view that the bank has failed and requires
external support to address a material capital shortfall. In
Fitch's view, the planned large asset sale to the PLF represents a
de-facto recognition by the Kazakh authorities of the scale of
KKB's asset-quality and solvency problems. Fitch has not downgraded
KKB's IDRs following the downgrade of the VR as the bank continue
to services its obligations and may receive external support
without losses being imposed on senior creditors.
Fitch expects to take rating actions on HB, KKB and HB's
subsidiaries - Halyk Finance (HF) and Halyk Bank Georgia (HBG) when
the acquisition is completed (or abandoned) and sufficient
information is available on the financial profiles of the entities
following the transaction. The resolution of the rating watches may
take more than six months, although Fitch understands that if the
parties go ahead with the planned transaction, then they aim to
complete it reasonably promptly.
HB and its subsidiaries could be downgraded if in Fitch's view the bank's asset quality and/or capitalization weaken materially as a result of the acquisition. However, the ratings could be affirmed if in Fitch's view any weakening of asset quality or capitalization is moderate, or if the transaction is abandoned.
KKB could be upgraded to a rating level close to that of HB if it is acquired by the latter and in Fitch's view HB would have a strong propensity to support its subsidiary. KKB could be downgraded if senior creditors absorb losses as part of the bank's resolution, or if the transaction is abandoned without an alternative creditor-friendly resolution scenario being proposed.
---
Follow us on Twitter @AzerNewsAz