S&P assigned Development Bank of Kazakhstan GAMMA-5 rating

/Standard & Poor's, Moscow, January 14, 10, Standard & Poor's English translation, KASE headline/ - Standard & Poor's Governance Services said it has assigned its governance, accountability, management, metrics, and analysis (GAMMA) score of 'GAMMA-5' to the JSC Development Bank of Kazakhstan (DBK), one of Kazakhstan's development institutions which is wholly owned by "Samruk-Kazyna" Sovereign Wealth Fund of Kazakhstan. "The shareholder, the board of directors and executives of the bank seek to establish governance structures and processes based on best international practice. Thus, two independent directors were appointed and the board's authority formalised," said Standard & Poor's governance analyst Elena Pastoukhova. "We also note a number of weaknesses that currently constrain the GAMMA score. The bank has an explicit role in stimulating the development of the national economy outside the extraction sector, however, the exact forms of support to the economy and strategies are not clearly defined and may not be consistent over time. For example, the bank's role in tackling the fallout from the global recession could sway the bank's goals and scope of activities, and as a result distract it from core operations. Other weaknesses comprise a considerable volume of related-party transactions, a lengthy decision-making process at parent level and politicised executive compensation decisions." The overall GAMMA score assigned to the DBK is the result of four component scores of 1 (low) to 10 (high). - Shareholder influence - 4+ - Shareholder rights - 5 - Transparency, audit and enterprise risk management (ERM) - 5+ - Board effectiveness, strategic process and incentives - 5 The strengths of corporate governance practices at the DBK, according to Standard & Poor's Governance Services, include: - That Samruk-Kazyna seeks to strengthen governance practices in subsidiaries, including the DBK. - The board is active, as are two out of three board-level committees, i.e. audit, and nominations & remuneration. - The audit committee is chaired by an audit expert, while the internal audit department reports to both the committee and the board. - Transparency is fairly good, in Standard & Poor's view. Annual IFRS statements with notes are published in a timely manner. - An enterprise risk management system is in place. Standard & Poor's analysis, however, identified several weaknesses it sees in the governance system of the DBK, including: - The government views the DBK as a tool through which to implement its industrial and innovation development strategy and combat the fallout from the global recession. As a result, the bank's goals and the specifics of its activity may not be consistent over time. - The slow decision-making process within the shareholder group of companies could result in significant operational delays for the DBK. - A lack of checks and balances is seen at board level. Of the six-member board, only two are independent directors. - Limited independence in establishing strategy. - Politicised executive compensation decisions. Executive pay is not currently linked to performance. Decision-making relating to the pay of the independent directors lacks clarity. - Limited disclosure of the shareholder's resolutions. Quarterly financials comprise only balance sheets and P&L statements. There are some weaknesses seen in ongoing disclosure. The opinions expressed are the independent opinions of Standard & Poor's Governance Services, a department of Standard & Poor's Equity Research Services, and do not reflect the opinions of other areas of Standard & Poor's. Standard & Poor's Corporate Governance Scores, GAMMA scores and other analytic services are performed as entirely separate activities in order to preserve the independence and objectivity of each analytic process. Information on corporate governance scores and GAMMA scores, including the related report "The Development Bank of Kazakhstan (JSC)", which will be published January 19, 2010, is available at www.governance.standardandpoors.com. Alternatively, call one of the following Standard & Poor's numbers: Moscow (7) 495-783-4000/40. A GAMMA score is based on current information provided to Standard & Poor's by the company, its officers and any other sources Standard & Poor's considers reliable. A GAMMA score is neither an audit nor a forensic investigation of governance practices. Standard & Poor's may rely on audited information and other information provided by the company for the purpose of the governance analysis. A GAMMA score is neither a credit rating nor a recommendation to purchase, sell or hold any interest in a company, as it does not comment on market price or suitability for a particular investor. Scores may also be changed, suspended or withdrawn as a result of change in, or unavailability of such information. This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. For details: Oleg Shvyrkov, Moscow, 7 (495) 495-783-40-94 Elena Pastukhova, Moscow 7 (495) 783-40-41 Analysts e-mails: elena_pastoukhova@standardandpoors.com oleg_shvyrkov@standardandpoors.com Governance@standardandpoors.com [2010-01-15]