Fitch Downgrades 10 Kazakhstan Financial Institutions

/Fitch Ratings, London/Moscow, February 19, 09, translated by Fitch Ratings/ - Fitch Ratings-London/Moscow-19 February 2009: Fitch Ratings has today downgraded the Long-term Issuer Default Ratings (IDRs) of Kazakhstan-based BTA Bank (BTA) and Alliance Bank (Alliance) by two notches to 'B+' and 'B', respectively. The agency has also downgraded by one notch the Long-term IDRs of six other Kazakh banks - Kazkommertsbank (KKB) to 'BB-' (BB minus), Halyk Bank (Halyk) to 'BB-' (BB minus), Bank CenterCredit (BCC) to 'B+', Temirbank (Temir) to 'B+', Kaspi Bank (Kaspi) to 'B' and Tsesnabank (Tsesna) to 'CCC', and downgraded by two notches Astana Finance (AF) and Astana Finance Leasing (AFL), both to 'B+'. The Outlooks on Kaspi and Tsesna have been changed to Negative from Stable and the other eight entities listed have been placed on Rating Watch Negative (RWN). Fitch has also placed the ratings of ATF Bank (ATF), Development Bank of Kazakhstan (DBK) and KazAgroFinance (KAF) on RWN. The Outlook on Eurasian Bank (Eurasian) has been changed to Negative from Stable. A full list of rating actions is provided at the end of this commentary. The downgrades of BTA, Alliance, Temir, KKB, Halyk, BCC, AF and AFL follow further review by Fitch of the ability and willingness of the Kazakh authorities to provide support to the country's financial sector, in case of need. In particular, Fitch's decision to widen the differential between the sovereign foreign currency Long-term IDR (which remains at 'BBB-(BBB minus), but was today placed on RWN) and those of the banks reflects three main concerns. First, Fitch notes the weaker prospects for the government's own financial position, and for the future level of foreign currency reserves in particular, as a result of the weaker oil price and increased demands on reserves, including from the non-bank sector. While this is not yet by itself sufficient to result in a downgrade of the sovereign rating, which is currently supported by the moderate levels of government debt, in Fitch's view the ability of the authorities to provide support to the banking sector has been negatively impacted in a material way, and is likely to be negatively impacted in the future. Second, the scale of support which the banking sector may require is greater than was previously anticipated in light of further recent deterioration in the operating environment and potentially sizeable bank-specific problems at BTA and Alliance. In particular, the deepening global recession, the negative impact of lower oil prices on corporate and household liquidity and the recent devaluation of the KZT are resulting in further deterioration in banks' asset quality and liquidity positions. These concerns have also been reflected in today's downgrades by one notch of the Individual ratings of KKB, Halyk, ATF and Temir, the downgrades of the Long-term IDRs of Kaspi and Tsesna and the Negative Outlook on Eurasian. Individual ratings reflect the likelihood that a bank will fail and require external support to avoid default. Third, Fitch's concerns about the possible restructuring of the liabilities of BTA and Alliance have heightened in recent days. Fitch currently expects that a restructuring package is likely to be offered in some form to some of the creditors of BTA and Alliance. At this stage the agency is not able to judge whether any such restructuring would be essentially forced in nature and would therefore constitute a distressed debt exchange (DDE); however, the banks' Long-term IDRs have been downgraded by two notches to reflect the heightened risk that a DDE will take place. In respect of AF and AFL, the decision to widen the notching by two notches reflects Fitch's opinion that, in the current situation, the Kazakh authorities are more likely to support systemically important banks like KKB and Halyk (both downgraded by one notch to 'BB-') than AF and/or AFL if they had to make the choice, despite AF being 25.5% beneficially owned by state-owned Samruk-Kazyna. The RWN on BTA, Alliance, Temir, KKB, Halyk, BCC, AF and AFL reflects both the RWN on the sovereign ratings and the heightened near-term risk relating to the possible restructuring of the liabilities of BTA and Alliance. The execution of a DDE at either of the latter banks would likely result in the downgrade of the affected bank(s) to 'RD' (Restricted Default). Other institutions listed in this paragraph would likely also be downgraded in case of such a DDE at BTA and/or Alliance, possibly by more than one notch, to reflect greater uncertainty as to the future provision of support to them by the Kazakh authorities, in case of need. The RWN on DBK and KAF reflects that on the sovereign ratings, while that on ATF reflects the potential for the bank's Long-term foreign currency IDR - which is constrained by the Country Ceiling - to be downgraded together with the sovereign ratings. Fitch will publish separate commentaries on the ratings and current financial positions of KKB, Halyk, ATF, BCC, Temir, Kaspi, Eurasian and Tsesna. Rating actions are as follows: BTA Bank Long-term foreign currency IDR: downgraded to 'B+' from 'BB'; placed on RWN Long-term local currency IDR: downgraded to 'B+' from 'BB'; placed on RWN Short-term foreign currency IDR: 'B', placed on RWN Short-term local currency IDR: 'B', placed on RWN Individual rating: affirmed at 'F' Support rating: downgraded to '4' from '3', placed on RWN Support Rating Floor: revised to 'B+' from 'BB', placed on RWN Senior unsecured debt: downgraded to 'B+' from 'BB', placed on RWN, Recovery Rating assigned at 'RR4' Tier 1 perpetual preferred securities: downgraded to 'CCC' from 'B-' (B minus), remains on RWN, Recovery Rating assigned at 'RR6" Kazkommertsbank Long-term foreign currency IDR: downgraded to 'BB-' (BB minus) from 'BB'; placed on RWN Long-term local currency IDR: downgraded to 'BB-' (BB minus) from 'BB'; placed on RWN Short-term foreign currency IDR: affirmed at 'B' Short-term local currency IDR: affirmed at 'B' Support rating: '3' placed on RWN Individual rating: downgraded to 'D/E' from 'D' Support Rating Floor: revised to 'BB-' (BB minus) from 'BB', placed on RWN Senior unsecured debt: downgraded to 'BB-' (BB minus) from 'BB', placed on RWN Subordinated debt: downgraded to 'B+' from 'BB-' (BB minus); placed on RWN Tier 1 perpetual subordinated notes: 'B-' (B minus) placed on RWN Halyk Bank of Kazakhstan Long-term foreign currency IDR: downgraded to 'BB-' (BB minus) from 'BB'; placed on RWN Long-term local currency IDR: downgraded to 'BB-' (BB minus) from 'BB'; placed on RWN Short-term foreign currency IDR: affirmed at 'B' Short-term local currency IDR: affirmed at 'B' Support rating: '3' placed on RWN Individual rating: downgraded to 'D' from 'C/D' Support Rating Floor: revised to 'BB-' (BB minus) from 'BB', placed on RWN Senior unsecured debt: downgraded to 'BB-' (BB minus) from 'BB', placed on RWN Alliance Bank Long-term foreign currency IDR: downgraded to 'B' from 'BB-' (BB minus); placed on RWN Short-term foreign currency IDR: 'B' placed on RWN Individual rating: affirmed at 'F' Support rating: downgraded to '4' from '3', placed on RWN Support Rating Floor: revised to 'B' from 'BB-' (BB minus), placed on RWN Senior unsecured debt: downgraded to 'B' from 'BB-' (BB minus); placed on RWN, Recovery Rating assigned at 'RR4' Senior unsecured debt issued in Russia: downgraded to 'BBB-(rus)' (BBB minus (rus)) from 'A+(rus)', placed on RWN ATF Bank Long-term foreign currency IDR: 'BBB' placed on RWN Short-term foreign currency IDR: affirmed at 'F3' Support rating: affirmed at '2' Individual rating: downgraded to 'D/E' from 'D' Senior unsecured debt: 'BBB' placed on RWN Bank CenterCredit Long-term foreign currency IDR: downgraded to 'B+' from 'BB-' (BB minus); placed on RWN Short-term foreign currency IDR: affirmed at 'B' Support rating: downgraded to '4' from '3' Individual rating: affirmed at 'D'; Support Rating Floor: revised to 'B+' from 'BB-' (BB minus), placed on RWN Senior unsecured debt: downgraded to 'B+' from 'BB-' (BB minus), placed on RWN, Recovery Rating assigned at 'RR4' Kaspi Bank Long-term foreign currency IDR: downgraded to 'B' from 'B+'; Outlook changed to Negative from Stable Short-term foreign currency IDR: affirmed at 'B' Individual rating: affirmed at 'D' Support rating: affirmed at '5', Support Rating Floor: affirmed at 'No Floor' Temirbank Long-term foreign currency IDR: downgraded to 'B+' from 'BB-' (BB minus); placed on RWN Short-term foreign currency IDR: 'B' placed on RWN Individual rating: downgraded to 'E' from 'D/E' Support rating: downgraded to '4' from '3', placed on RWN Support Rating Floor: revised to 'B+' from 'BB-' (BB minus), placed on RWN Senior unsecured debt: downgraded to 'B+' from 'BB-' (BB minus); placed on RWN; Recovery Rating assigned at 'RR4' Eurasian Bank Long-term foreign currency IDR: affirmed at 'B-' (B minus); Outlook changed to Negative from Stable Short-term foreign currency IDR: affirmed at 'B' Individual rating: affirmed at 'D/E' Support rating: affirmed at '5' Support Rating Floor: affirmed at 'No Floor Tsesnabank Long-term foreign currency IDR: downgraded to 'CCC' from 'B-' (B minus); Outlook changed to Negative from Stable; Short-term foreign currency IDR: downgraded to 'C' from 'B' Individual rating: downgraded to 'E' from 'D/E' Support rating: affirmed at '5' Support Rating Floor: affirmed at 'No Floor' Senior Unsecured Debt: Downgraded to 'CCC' from 'B-' (B minus), Recovery Rating at 'RR4' Astana-Finance Long-term foreign currency IDR: downgraded to 'B+' from 'BB'; placed on RWN Long-term local currency IDR: downgraded to 'B+' from 'BB'; placed on RWN Short-term foreign currency IDR: affirmed at 'B' National Long-term rating: downgraded to 'BBB-(BBB minus)(kaz)' from A+(Kaz)'; placed on RWN Individual rating: affirmed at 'D/E' Support rating: downgraded to '4' from '3', placed on RWN Support Rating Floor: revised to 'B+' from 'BB', placed on RWN Senior unsecured debt: downgraded to 'B+' from 'BB'; placed on RWN, Recovery Rating assigned at 'RR4' Astana-Finance Leasing Company Long-term foreign currency IDR: downgraded to 'B+' from 'BB'; placed on RWN Long-term local currency IDR: downgraded to 'B+' from 'BB'; placed on RWN Short-term foreign currency IDR: affirmed at 'B' National Long-term rating: downgraded to 'BBB-(BBB minus)(kaz)' from A+(kaz)'; placed on RWN Support rating: downgraded to '4' from '3', placed on RWN Development Bank of Kazakhstan Long-term foreign currency IDR: 'BBB-' (BBB minus); placed on RWN Long-term local currency IDR: 'BBB'; placed on RWN Short-term foreign currency IDR: 'F3' placed on RWN Short-term local currency IDR: affirmed at 'F3' Support rating: '2' placed on RWN Support Rating Floor: 'BBB-' (BBB minus); placed on RWN Senior unsecured debt: 'BBB-' (BBB minus); placed on RWN KazAgroFinance Long-term foreign currency IDR: 'BB+'; placed on RWN Long-term local currency IDR: 'BBB-' (BBB minus); placed on RWN Short-term foreign currency IDR: affirmed at 'B' National Long-term rating: affirmed at 'AA(kaz)'; Outlook Stable Support rating: affirmed at '3' Support Rating Floor: 'BB+'; placed on RWN Contacts: Alexei Kechko, James Watson, Moscow, Tel: +7 495 956 9901 Media Relations: Alexei Mironov, Moscow, Tel: + 7 495 956 9901/9908, alexei.mironov@fitchratings.com Marina Moshkina, Moscow, Tel: + 7 495 956 6904/9901, marina.moshkina@fitchratings.com [2009-02-20]