S&P affirms Nurbank credit ratings at "В/В", revises outlook from Stable to Negative
03.02.16 17:49
/Standard & Poor's, Moscow, February 2, 16, heading by KASE/ – Standard & Poor's
Ratings Services said today that it had revised its outlook on Kazakhstan- based
Nurbank JSC to negative from stable. The 'B/B' long- and short-term counterparty
credit ratings were affirmed.
We also lowered our long-term Kazakhstan national scale rating on Nurbank to
'kzBB' from 'kzBB+'.
The outlook revision stems from our expectation that Nurbank's deteriorating
capitalization, combined with negative trends in Kazakhstan's economy and
banking sector, will put further pressure on the bank's creditworthiness over
the next 12 months.
We now regard the bank's capitalization as moderate rather than adequate, due
to low expected earnings capacity. In our view, Nurbank will be unable to build
up capital in 2016 without equity injections, taking into account growth of
risk-weighted assets. Nevertheless, both moderate and adequate capital and
earnings are neutral rating factors for a bank with a 'bb-' anchor, which starts
our rating analysis of banks in Kazakhstan.
Our RAC ratio for Nurbank was 6.9% at year-end 2014, and we estimate it will
decrease to approximately 5.8%-6.4% in 2015-2016 in the absence of shareholder
capital injections. The bank's capitalization is being eroded by depreciation of
the Kazakhstani tenge, because the share of foreign-currency denominated assets
is increasing due to the exchange rate, whereas capital is denominated in tenge.
Positively, net of the devaluation effect, we assess the bank's growth strategy
to be reasonable under the difficult economic conditions.
Our forecast for Nurbank in 2016 reflects the following base-case assumptions:
- Loan growth of about 7%, net of devaluation effects.
- No known shareholder capital injections.
- Low earnings contribution to the capital base, with the return on assets
- (ROA) at about 0.2%.
- Cost of risk at about 2%, although this could be higher. Nurbank has
sufficient provisions to cover overdue loans, but we note that restructured
loans form about half of the loan book and total provisions cover only 27%
of total loans.
We consider that Nurbank's profitability has historically been poor and we
expect it will be low in 2016. In the first 11 months of 2015, Nurbank achieved
a low ROA of 0.35% and a return on equity of 2.6%, according to our estimates.
We expect a lower net interest margin in 2016 than in 2015, due to the
continuing lack of tenge liquidity, which is pushing up funding costs. In our
view, Nurbank's preprovisioning earnings will be insufficient in the event of a
sudden rise in credit costs; for example, if the economic environment
deteriorates further or underwriting standards weaken in the retail segment.
The bank's exposure to the construction and real estate sectors was reportedly
26% of total loans as of Sept. 1, 2015, which is in line with the industry
average. This represents a decline from 39% as of June 1, 2012, following the
sale of problem loans in this segment to third-party collectors and transfers
to a special-purpose vehicle. However, the share is still high and weighs on
the RAC ratio.
The negative outlook indicates that we might lower the ratings over the next 12
months if weakening capitalization and negative trends in Kazakhstan's
economy and banking sector erode Nurbank's creditworthiness. It also reflects
our expectation that Nurbank may face difficulties in developing new business
and generating sufficient stable revenues to maintain capital over that period.
We could lower the ratings if we saw significantly higher industry risks for
banks in Kazakhstan or if Nurbank's nonperforming loans started increasing,
especially if the increase exceeded that of peers and stemmed from loans
granted after 2011. Likewise, a further reduction of Nurbank's loss-absorption
capacity, due, for example, to higher provisioning expenses than we currently
assume; or material one-time charges that reduce our projected RAC ratio to
below 5%, would lead to a downgrade.
We could revise the outlook to stable if the bank is able to improve its
capitalization to adequate levels, according to our methodology. This is after
taking into account forecast growth of the bank's risk-weighted assets,
including devaluation and organic growth, and its internal capital generation
over the next two years, subject to our view of negative trends in the Kazakh
banking industry at that time.
Primary Credit Analyst
Suren Asaturov, Moscow (7) 495-662-34-90;
suren.asaturov@standardandpoors.com
Secondary Contact
Annette Ess, CFA, Frankfurt (49) 69-33-999-157;
annette.ess@standardandpoors.com
Additional Contact
Financial Institutions Ratings Europe;
FIG_Europe@standardandpoors.com
[2016-02-03]