Moody's downgrades five Kazakh financial institutions
05.05.10 15:18
/Moody's Investors Service, Moscow, May 4, 10/ - Moody's Investors Service
has today concluded its review for possible downgrade of six Kazakh financial
institutions with the downgrade of the ratings of five financial institutions,
four of which are financial Government-Related Issuers (GRIs) - namely Development
Bank of Kazakhstan, Kazakhstan Mortgage Company, KazAgroFinance and
Agrarian Credit Corporation. The fifth institution affected by the downgrade is
House Construction Savings Bank of Kazakhstan - a fully government-owned
bank. The ratings of the sixth institution under review DBK-Leasing, a fully owned
subsidiary of Development Bank of Kazakhstan, were confirmed. The outlook on
Kazakhstan Mortgage Company's long-term issuer rating is negative, reflecting
the ongoing pressure on the company's stand-alone financial profile and, in
Moody's view, its diminishing policy role. The outlook for the issuer and deposit
ratings of all other aforementioned financial institutions is stable, in line with
the stable outlook on Kazakhstan's sovereign rating.
The downgrades were triggered by a lowering of Moody's support assumptions
incorporated in the ratings of the five Kazakh institutions affected, and conclude
the review process initiated on 8 April 2010.
Given the government's propensity to protect its balance sheet from large
contingent liabilities, the rating agency has reassessed the level of the
government support incorporated into the ratings of the five Kazakh institutions.
The agency notes that although the affected institutions continue to serve
important policy roles within the Kazakh financial sphere, the strategic
importance of these entities for the government may not be as vital as other
GRIs, particularly those operating in the oil and gas industry, which is the main
engine of economic growth for the country. As a result, Moody's has lowered the
level of government support reflected in the ratings of these financial
institutions, causing a downward adjustment in their issuer and debt ratings. The
issuer ratings of DBK-Leasing were confirmed, given that the downgrade of its
parent's rating by one notch has no impact on Moody's assessment of the possible
parental support to the issuer.
Moody's notes that although the review led to a reduction in the level of credit
enhancement stemming from government support, the ratings of the five Kazakh
institutions continue to benefit from significant uplift from their stand-alone or
Baseline Credit Assessments (BCAs). The new ratings still reflect between one-
to four- notches of uplift from their BCAs.
The rating actions taken by Moody's in respect of these financial institutions are
as follows:
Development Bank of Kazakhstan: The long-term foreign currency issuer and
debt ratings were downgraded to Baa3 from Baa2. The outlook is now stable.
These ratings benefit from Moody's assessment of a high probability of
government support that results in a three-notch uplift from the bank's BCA of 11-
13.
House Construction Savings Bank of Kazakhstan: The long-term and short-term
local currency deposit ratings were downgraded to Ba1/Not Prime from
Baa3/Prime-3. The outlook is now stable. These ratings benefit from Moody's
assessment of a high probability of government support that results in a four-
notch uplift from the bank's BCA of B2.
KazAgroFinance: The long-term local and foreign currency issuer ratings were
downgraded to Ba2 from Ba1. The outlook is now stable. These ratings benefit
from Moody's assessment of a medium probability of government support that
results in a tree-notch uplift from the company's BCA of 15.
Agrarian Credit Corporation: The long-term local and foreign currency issuer
ratings were downgraded to Ba2 from Ba1. The outlook is now stable. These
ratings benefit from Moody's assessment of a medium probability of government
support that results in a tree-notch uplift from the company's BCA of 15.
Kazakhstan Mortgage Company: The long-term local currency issuer rating was
downgraded to B1. The outlook is negative, reflecting the ongoing pressure on
the company's stand-alone financial profile and, in Moody's view, the recently
diminishing policy role that the company serves within the Kazakh financial
sphere. This rating benefits from Moody's assessment of a medium probability of
government support that results in a one notch uplift from the company's BCA of
15.
DBK-Leasing: The Ba3 long-term local and foreign currency issuer ratings was
confirmed; these ratings continue to benefit from Moody's assessment of a high
probability of parental support that results in a three-notch uplift from the
company's BCA of B3.
PREVIOUS RATING ACTION AND PRINCIPAL METHODOLOGIES
Moody's previous rating action on Development Bank of Kazakhstan, Kazakhstan
Mortgage Company, KazAgroFinance, Agrarian Credit Corporation, House
Construction Savings Bank of Kazakhstan and DBK-Leasing was on 8 April
2010, when the rating agency placed on review for possible downgrade the
issuer and deposit ratings of the aforementioned financial institutions following
the sovereign rating action.
The principal methodologies used in rating of Development Bank of Kazakhstan,
KazAgroFinance, Agrarian Credit Corporation and Kazakhstan Mortgage
Company are "The Application of Joint-Default Analysis to Government Related
Issuers", April 2005.
The principal methodologies used in rating House Construction Savings Bank of
Kazakhstan were "Bank Financial Strength Ratings: Global Methodology",
February 2007, and "Incorporation of Joint-Default Analysis into Moody's Bank
Ratings: A Refined Methodology", March 2007, which can be found at
www.moodys.com in the Rating Methodologies sub-directory under the Research
& Ratings tab.
The principal methodologies used in rating of DBK-Leasing are "Analyzing the
Credit Risk of Finance Companies", October 2000, and "Incorporation of Joint-
Default Analysis into Moody's Bank Ratings: A Refined Methodology", March
2007, which can be found at www.moodys.com in the Rating Methodologies sub-
directory under the Research & Ratings tab.
Other methodologies and factors that may have been considered in the process
of rating the aforementioned issuers can also be found in the Rating
Methodologies sub-directory on Moody's website.
Moscow
Semyon Isakov
Asst Vice President - Analyst
Financial Institutions Group
Moody's Eastern Europe LLC
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091
London
Yves Lemay
Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
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SUBSCRIBERS: 44 20 7772 5454
[2010-05-05]