Fitch assigns ratings to SB Home Credit and Finance Bank (Kazakhstan); outlook Stable
25.04.13 12:21
/Fitch Ratings, London-Moscow, April 24, 13, heading by KASE/ – Fitch Ratings
has assigned Kazakhstan-based Subsidiary Bank Joint-Stock Company Home Credit
and Finance Bank (HCK) a Long-term Issuer Default Rating (IDR) of 'BB-' with a
Stable Outlook. A full list of rating actions is at the end of this comment.
KEY RATING DRIVERS - IDRS, NATIONAL RATING AND SUPPORT RATING
The Long-term IDRs, National Rating and Support Rating reflect the moderate
probability of the bank receiving support in case of need from its parent,
Russia's Home Credit and Finance Bank (HCFB, 'BB/Stable; bb'). Fitch's view on
the probability of support is based on the bank's full ownership by HCFB, its
small size relative to the parent (HCK accounts for 5% of HCFB's assets,
limiting the cost of any potential support) and reputational risk for HCFB in
case of the bank's default.
The one-notch difference between HCFB and HCK's ratings reflects the cross-
border nature of the parent-subsidiary relationship, HCK's so far limited track
record of operations and some uncertainty about the long-term commitment of
HCFB to support HCK in case of a prolonged deterioration of the operating
environment in Kazakhstan.
RATING SENSITIVITIES - IDRS, NATIONAL RATING AND SUPPORT RATING
Any positive or negative action on the parent's Long-term IDRs would likely be
matched by a similar action on HCK's Long-term IDRs. This would also impact the
National Rating and could result in a change in the Support Rating.
KEY RATING DRIVERS - VIABILITY RATING (VR)
The VR of 'b' reflects the bank's currently solid capitalisation, strong
profitability and adequate asset quality. At the same time, the VR is
constrained by the bank's still short track-record of healthy performance and
limited franchise, higher than average sensitivity to macroeconomic shocks,
tight liquidity and weak funding profile reflected in high single-name
concentrations and dependence on parent facilities.
HCK is a wholly-owned subsidiary of HCFB, which in turn is the part of a broader
Home Credit Group (Home Credit B.V.) with activities in CEE, CIS and Asia. The
group is in turn majority-owned by PPF Group N.V., an industrially diversified
holding company controlled by Czech businessman Peter Kellner.
HCK is a small but rapidly growing (110% loan growth in 2012) retail bank that
focuses on issuing point-of-sale and cash loans to lower mass-market customers.
As with other mass-market retail lenders, this makes the bank sensitive to
macroeconomic fundamentals due to the relatively low financial flexibility of
its borrowers.
HCK's asset quality is currently adequate. NPLs (non-performing loans; 90 days
overdue) increased to a still moderate 5% at end-2012 from 2.8% at end-2011 with
NPL generation reaching 7.7% of average performing loans in 2012 as the bank
tapped higher risk clientele. Fitch expects credit losses to further increase as
HCK leverages up its borrowers with longer-term larger-ticket cash loans,
growth moderates and the rapidly acquired portfolio seasons. However, the wide
interest margin (26% in 2012) and significant loan-related insurance commission
(equal to 54% of pre-impairment profit in 2012) offer considerable flexibility
to absorb losses, and Fitch estimates the current break-even loss rate to be
around 31% of average loans. At the same time, Fitch notes that insurance
commissions are recognised upfront at loan origination, and as portfolio growth
slows down bank's profitability is likely to moderate significantly and the
break-even loss rate would also be lower.
HCK is currently reliant on funding provided by the group (37% of liabilities at
end- 2012) and non-core corporate deposits (35% of liabilities at end-2012). The
latter are highly concentrated with the largest five accounting for 28%, and
the largest one 14%, of end-2012 liabilities.
Liquidity is currently tight with liquid assets equal to only 9% of liabilities
at end- January 2013. Mitigating deposit withdrawal risk to an extent, HCK's
quickly amortising loan book generates KZT6bn of monthly repayments (equal to
11% of end-January 2013 liabilities). Management plans to reduce the bank's
reliance on parent's funding and corporate deposits by attracting wholesale
debt and shifting its focus to retail deposits. However, given its currently
modest franchise, HCK has yet to prove that it can attract and retain retail
depositors.
The current capital position is solid, with a Fitch core capital ratio of 32% at
end- 2012 (28% at end-2011). However, capitalisation is likely to decline as
internal capital generation (43% in 2012), although high, is significantly
below expected loan growth rates. Further capital weakening could follow when
the bank starts paying dividends.
RATING SENSITIVITIES - VR
An extended track record of sound performance and growth supported by a more
diversified funding base would be positive for the standalone profile. A
significant deterioration of the operating environment in Kazakhstan, or weaker
performance of the loan book would be negative and could lead to downward
pressure on the VR.
The rating actions are as follows:
Long-term foreign currency IDR: 'BB-'; Outlook Stable
Short-term foreign currency IDR: 'B'
Long-Term local currency IDR: 'BB-'; Outlook Stable
National Long-Term Rating: 'BBB+(kaz)'; Outlook Stable
Viability Rating: 'b'
Support Rating: '3'.
Primary Analyst, Dmitri Vasiliev, Associate Director +7 495 956 5576
Secondary Analyst, Roman Kornev, Associate Director+7 495 956 7016
Committee Chairperson, James Watson, Managing Director+7 495 956 6657
Media relations:
Julia Belskaya von Tell, Moscow, tel. + 7 495 956 9908/9901,
julia.belskayavontell@fitchratings.com
[2013-04-25]