S&P Global Ratings has revised its outlook on Halyk Savings Bank of Kazakhstan to negative from stable and affirmed its 'BB/B' long- and short-term counterparty credit ratings on the bank, the agency said July 8.
S&P also lowered Kazakhstan national scale rating on Halyk Bank to 'kzA' from 'kzA+'.
S&P said that the downgrade stems from Halyk Bank's inability to substantially clean up its legacy problem loan portfolio, which was generated before 2008.
S&P said that Halyk Bank's nonperforming loans (NPLs; loans more than 90 days overdue) increased to 11.7 percent (under national accounting standards) as of June 1, 2016, from 9.2 percent as of year-end 2015. This compares unfavorably with the system average of 8.2 percent as of June 1, 2016, as well as the NPL levels of other large Kazakh banks, which ranged between 5.6 percent and 9.7 percent as of the same date.
Also, Halyk Bank's loan loss provisioning coverage reduced to 99 percent as of March 31, 2016, from 118.5 percent at year-end 2015, the agency said.
S&P nevertheless expects that the bank can maintain the loan loss coverage ratio at least at the current level.
Therefore, even though S&P still assesses Halyk Bank's risk position as adequate, in contrast to our assessment of moderate risk for the majority of rated Kazakh banks, it is becoming increasingly weaker.
The agency expects Halyk Bank's asset quality to deteriorate further in the next 12-18 months, in line with the Kazakh banking system, due to sharply reduced economic growth prospects and substantial tenge devaluation in 2015. The agency expects to see a further increase in Halyk Bank's NPLs to about 12 percent -14 percent of the loan book over that period, which is what the agency forecasts for the system.
S&P said that the negative outlook on Halyk Bank indicates the possibility of a downgrade if pressure on the bank's asset quality and profitability increases over the next 12-18 months.
The agency could lower the ratings over that period if they agency does not see material improvements in Halyk Bank's asset quality and profitability from current levels, with NPLs staying higher than 10 percent or cost of risk increasing above 2 percent.
S&P could revise the outlook to stable in the next 12-18 months if Halyk Bank reduced its NPLs to below the system average, while maintaining adequate loan loss provision coverage, thereby supporting our assessment of its risk position as adequate, provided that other rating factors do not deteriorate.
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