S&P Report Says Kazakh Banks' Falling Asset Quality Has Become A Determining Rating Factor

/Standard & Poor's, Paris, June 30, 08/ - Standard & Poor's Ratings Services said today that declining asset quality has become a critical problem for financial institutions in Kazakhstan and for the banking sector as a whole. "We now estimate that true problem loans largely exceed reported nonperforming loans," said Standard & Poor's credit analyst Ekaterina Trofimova, lead author of the Credit FAQ published today, "Asset Quality Has Become The Critical Factor For The Health Of Kazakh Banks And Banking System." "We estimate loans under stress at 15%-20% for the banking sector. This estimate exceeds by far average NPL ratios reported by banks of 2%-4%. To avoid reporting higher NPLs, Kazakh banks restructure problem loans and extend grace periods," added Ms. Trofimova. In addition, we believe that Kazakh banks have entered a new phase as the market turbulence lingers, with asset quality becoming a determining factor in their creditworthiness, solvency, liquidity, and in the longer-term health of the banking system. "If we see no sign of a recovery or at least stabilization in asset quality at banks, and of an improvement in their ability to absorb losses, recognize credit losses, and raise the capital they need, we could downgrade some of them in the coming couple of quarters," said Ms. Trofimova. "Despite their resilience so far, the loss-absorption capacity and creditworthiness of most banks nevertheless would benefit from higher provisions and increased capital." In the report, Standard & Poor's examines the forces behind the drop in asset quality and its implications for the Kazakh banks it rates, and answers frequently asked questions about the trend: - Why do your consider the performance of loans on banks' books as the major risk to the creditworthiness of Kazakh banks? - How and when will the banking system turn around? - What is your current estimate of problem loans in the Kazakh banking system? Have all asset quality problems become visible? - Is there any relief in sight for Kazakh banks? - You have maintained negative outlooks on the ratings of most Kazakh banks since December 2007. When could we expect downgrades and for what reasons? - Do Kazakh banks have enough of a cushion to absorb losses? What are your expectations for profitability? How is liquidity? - How will the current correction affect the creditworthiness of Kazakh banks? For detailed information please contact to: Annette Ess, CFA, London, (44) 20-7176-7206; annette_ess@standardandpoors.com Ekaterina Trofimova, Paris, (33) 1-4420-6786; ekaterina_trofimova@standardandpoors.com Magar Kouyoumdjian, London (44) 20-7176-7217 magar_kouyoumdjian@standardandpoors.com [2008-06-30]