S&P upgraded ratings of three banks of Kazakhstan

/REUTERS, February 10, 06/ - Standard & Poor's Ratings Services said today that it has raised its long-term counterparty credit and certificate of deposit ratings on three banks in the Republic of Kazakhstan (foreign currency, BBB-/Stable/A-3; local currency, BBB/Stable/A-3) due to a greater weighting of potential government support in the banks' creditworthiness. The three banks affected are: - Kazkommertsbank (JSC) (raised to 'BB+' from 'BB'); - Bank TuranAlem (raised to 'BB' from 'BB-'); and - Halyk Savings Bank of Kazakhstan (raised to 'BB' from 'BB-'). At the same time, Standard & Poor's affirmed the 'B' short-term ratings on the three banks. The outlook on the long-term ratings on the banks is stable. Following today's rating actions, these three Kazakh commercial banks have counterparty credit ratings that are one notch higher than their respective stand-alone ratings that exclude this potential extraordinary government support. Standard & Poor's views these three banks as systemically important. The rating differentials between the three banks reflect differences in their commercial and financial risk profiles. "The upgrades reflect our opinion that the government of Kazakhstan would likely provide extraordinary assistance to the systemically important banks in the country in the event that these banks encounter distress," said Standard & Poor's credit analyst Magar Kouyoumdjian. Extraordinary government support refers to specific actions-recapitalization, liquidity support, or the purchase of problem assets at below market prices- that would prevent banks, including private sector banks, from failing. Potential government support for systemically important banks in Kazakhstan is likely, but not assured. This reflects the dominant role of at least the three largest banks in financing the country's economy as well as serving the population, and the protective regulatory policies concerning the banking sector. Most of the banking system in Kazakhstan is privately owned, which implies limited government interference in their strategies. On the negative side, there are political considerations and the bank has a nontransparent ownership structure. The country's strong fiscal stance-largely driven by high oil prices-provides the authorities with the financial capacity to provide exceptional support to the banking sector. Furthermore, we consider that the Kazakh authorities are strongly committed to maintaining a stable financial system. It should be emphasized, however, that Standard & Poor's does not assume that the government will support all distressed banks under any circumstances, as support has been selective and more forthcoming to larger and more systemically important banks. Specific past actions in support of troubled banks have gone beyond the liquidity facilities that central banks would typically be expected to offer in their role as lender of last resort. In the past, they have demonstrated a willingness to intervene to rescue distressed financial institutions. Since the end of communism in 1991, the Kazakh government has intervened and rescued several banks during the frequent turbulent periods among Kazakh banks. Nonetheless, the recent experience with troubled midsize bank Nauris-bank - which failed in 2005 - shows that the Kazakh authorities will allow banks that are not systemically important to fail. Ratings List To From Kazkommertsbank (JSC) Counterparty credit rating BB+/Stable/B BB/Stable/B Certificates of deposit BB+/B BB/B Bank TuranAlem Counterparty credit rating BB/Stable/B BB-/Positive/B Certificates of deposit BB/B BB-/B Halyk Savings Bank of Kazakhstan Counterparty credit rating BB/Stable/B BB-/Stable/B Certificates of deposit BB/B BB-/B N.B.: This list does not include all ratings affected. [2006-02-13]