Fitch Affirms IDRs of Kazakhstan's Alliance and BTA; BTA Affiliates on Watch Negative

/Fitch Ratings, London/Moscow, February 6, 09/ - Fitch Ratings has today affirmed Kazakhstan-based BTA Bank's (BTA) and Alliance Bank's (Alliance) Long-term Issuer Default ratings (IDRs) at 'BB' and 'BB-'(BB minus), respectively, with Negative Outlooks. At the same time, the agency has downgraded the Individual ratings of both banks to 'F', and placed BTA's perpetual preferred securities on Rating Watch Negative (RWN). The agency has also put the ratings of four foreign affiliates of BTA - BTA Russia, BTA Kazan, BTA Georgia and BTA Belarus - on RWN. The ratings of Temirbank, a domestic subsidiary of BTA, including its Long-term IDR of BB-'(BB minus) with a Negative Outlook, are affirmed. A full list of rating actions is provided at the end of this announcement. The rating actions follows the recent announcement that the Kazakhstan government, through the National Welfare Fund Samruk-Kazyna (SK), is acquiring a 78.14% stake in BTA through the purchase of a new share issue for KZT251bn. SK is also considering an offer from Seimar Alliance Financial Corporation to purchase a 76% stake in Alliance for the symbolic amount of KZT100; SK has also placed a KZT24bn deposit with Alliance to support its liquidity. In Fitch's view, these events confirm the agency's long-stated position that the Kazakh authorities would be likely to have a high propensity to support, in case of need, banks which they consider to be systemically important. However, the two-notch differential between the Long-term foreign currency IDR of the sovereign ('BBB-' (BBB minus)/Negative Outlook) and those of BTA, Kazkommertsbank and Halyk Bank (all rated 'BB'/Negative Outlook) continues to factor in the difference in the ability of the authorities to service the sovereign's own, relatively moderate, debt and to provide sufficient support to the banks, in case of need, to meet their much larger obligations. The larger three-notch differential between the sovereign rating and that of Alliance takes into account the latter's lesser systemic importance, reflected in its smaller and declining market shares, which could make it potentially somewhat less likely than the big three banks to receive support in the future. The lower rating also considers the fact that the sale of the bank to SK has yet to go through and the still moderate amount of support which the bank has received to date. In Fitch's view, the possibility of SK not acquiring the bank cannot be fully excluded, in particular in view of uncertainty as to whether the acquisition might trigger acceleration of some of the bank's debt. The Negative Outlooks on BTA's and Alliance's IDRs reflect those on the sovereign rating. Any further downgrade of the sovereign would likely result in a downgrade of the banks. The banks could also be downgraded should the Kazakh authorities seek to impose a restructuring of their obligations, for example, in response to any attempts by creditors to accelerate the banks' debt. The 'F' Individual ratings of BTA and Alliance reflect Fitch's opinion that the banks have failed and would have defaulted in the short- to medium-term without the recent and potential future external support made available to the banks by the Kazakh authorities. BTA's continued aggressive loan growth in 2008, which has focused to a large degree on the Russian real estate sector and has been funded predominantly by shorter-term inter-bank borrowings and customer deposits, had severely compromised the bank's capital and liquidity positions. The recent equity injection alleviates near-term liquidity concerns to a large degree and leaves the bank significantly better-positioned to meet its substantial 2009 international debt repayments. The recapitalisation, and now much higher loan impairment reserve (approximately 24.9% of gross loans in regulatory accounts, Fitch understands), has also substantially increased the capacity of the bank's balance sheet to absorb losses going forward. However, in light of the high risk nature of much of the bank's lending, the fact that the ultimate beneficiaries of many of the higher-risk loans may, in Fitch's view, be affiliated with the bank's (now) minority shareholders, the still low level of loan impairment recognition on the Kazakh loan book, the ongoing deterioration in the domestic operating environment and the recent devaluation of the KZT, BTA may yet be forced to book further write downs and require additional capital injections in the future. Alliance's most recent (end-January) reported liquidity, non-performing loan (NPL) and capital metrics do not suggest that the bank's default was imminent, although Fitch has been informed that recent margin calls on outstanding FX derivatives have represented a significant drain on the bank's liquidity. However, Fitch understands that loan performance has weakened further in Q408 and 2009 to date as a result of the ongoing deterioration in the operating environment, a trend which could intensify following the devaluation of the KZT and result in critical pressure on liquidity and/or capital in 2009, absent external support. The RWN on BTA's USD400m Tier 1 perpetual preferred securities (rated B-' (B minus)) reflects greater uncertainty as to whether future dividend payments on the securities will be made in light of the bank's weak stand- alone financial position and the dependence of the bank on support being made available by the Kazakh authorities. Fitch notes that the main condition for dividend non-payment (that a dividend payment would cause a breach of regulatory capital requirements by BTA) may not be met in the near-term as the dividend payment is relatively small and the Kazakh authorities would probably seek to maintain BTA's capital ratio with at least a small cushion above the regulatory minimum. However, given the level of uncertainty surrounding the deferral decision process and the treatment of the securities by the Kazakh authorities, as well as the potential for future deterioration in the stand-alone financial position of the bank, Fitch has placed the rating on RWN. The RWN on the ratings of BTA's foreign affiliates reflects heightened uncertainty over SK's strategy in respect to those banks, and hence its propensity to provide support to them, in case of need. This uncertainty is greatest in respect to those banks where BTA holds only a minority stake (BTA Russia, BTA Kazan and BTA Georgia), and particularly acute in respect to BTA Russia, where BTA owns only a 22% stake, albeit Fitch understands that BTA still retains an option to increase its stake in BTA Russia to a majority one. Fitch will resolve the RWN on these banks on understanding better SK's strategy in respect to them; should Fitch cease to factor support into the banks' ratings, downgrades could be by more than one notch. The affirmation of Temirbank's ratings reflects Fitch's greater certainty that, as a majority-owned, domestically-based subsidiary of BTA, it would be likely to benefit, together with BTA, from any support made available by the Kazakh authorities. In light of the ongoing deterioration in the Kazakh operating environment, in particular as a result of the impact of lower oil prices and the devaluation of the KZT, Fitch will continue to assess closely the potential for this to have a negative impact on the credit profiles and ratings of other banks in the system. Rating actions: BTA Bank (BTA) Long-term foreign currency IDR: affirmed at 'BB'; Outlook Negative Long-term local currency IDR: affirmed at 'BB'; Outlook Negative Short-term foreign currency IDR: affirmed at 'B' Short-term local currency IDR: affirmed at 'B' Individual rating: downgraded to 'F' from 'D' Support rating: affirmed at '3' Support Rating Floor: affirmed at 'BB' Senior unsecured debt: affirmed at 'BB' Tier 1 perpetual preferred securities: 'B-' (B minus); placed on Rating Watch Negative Alliance Bank (Alliance) Long-term foreign currency IDR: affirmed at 'BB-' (BB minus); Outlook Negative Short-term foreign currency IDR: affirmed at 'B' Individual rating: downgraded to 'F' from 'D/E' Support rating: affirmed at '3' Support Rating Floor: affirmed at 'BB-' (BB minus) Senior unsecured debt: affirmed at 'BB-' (BB minus) Temirbank Long-term foreign currency IDR: affirmed at 'BB-' (BB minus); Outlook Negative Short-term foreign currency IDR: affirmed at 'B' Individual rating: affirmed at 'D/E' Support rating: affirmed at '3' Support Rating Floor: affirmed at 'BB-' (BB minus) Senior unsecured debt: affirmed at 'BB-' (BB minus) LLS BTA Bank (Russia) (BTA Russia) Long-term foreign currency IDR 'B'; placed on Rating Watch Negative Short-term foreign currency IDR 'B'; placed on Rating Watch Negative Individual rating: 'D/E'; placed on Rating Watch Negative National Long-term rating: 'BBB-(BBB minus)(rus)'; placed on Rating Watch Negative Support rating: '4'; placed on Rating Watch Negative Senior unsecured debt: 'B'; placed on Rating Watch Negative; Recovery Rating affirmed at 'RR4' CJSC BTA Bank (Belarus) (BTA Belarus) Long-term foreign currency IDR: 'B'; placed on Rating Watch Negative Short-term foreign currency IDR: 'B'; placed on Rating Watch Negative Individual rating: affirmed at 'E' Support rating: '4'; placed on Rating Watch Negative JSC Bank BTA-Kazan (OJSC) (BTA Kazan) Long-term foreign currency IDR: 'B'; placed on Rating Watch Negative Short-term foreign currency IDR: 'B'; placed on Rating Watch Negative Individual rating: 'D/E'; placed on Rating Watch Negative National Long-term rating: 'BBB-(BBB minus)(rus)'; placed on Rating Watch Negative Support rating: '4'; placed on Rating Watch Negative JSC BTA Bank (Georgia) (BTA Georgia) Long-term foreign currency IDR: 'B'; placed on Rating Watch Negative Short-term foreign currency IDR: 'B'; placed on Rating Watch Negative Individual rating: affirmed at 'E' Support rating: '4'; placed on Rating Watch Negative Contact: James Watson, Maxim Miller, Alexei Kechko, Moscow Tel: +7 495 956 9901 Media contact: Alla Izmailova, Moscow, Tel.: + 7 495 956 9901/9903, alla.izmailova@fitchratings.com [2009-02-09]