Moody's affirms Development Bank of Kazakhstan ratings

/Moody's Investors Service, London, December 2, 11, heading by KASE/ - Moody's Investors Service has today affirmed the following ratings of Development Bank of Kazakhstan: the Baa3 long-term foreign currency issuer rating, the provisional (P)Baa3 foreign currency rating assigned to the bank's US$2 billion European Medium-Term Note programme, and the Baa3 foreign currency debt rating assigned to the bank's senior unsecured US$777 million five-year bond issued under this programme. Moody's affirmation of Development Bank of Kazakhstan's ratings is based on the bank's audited financial statements for 2010 prepared under IFRS, and its H1 2011 unaudited results prepared under IFRS. RATINGS RATIONALE "Moody's affirmation of Development Bank of Kazakhstan's ratings, with a stable outlook, reflects the bank's solid capital buffer and liquidity cushion as well as high probability of government support in the event of need," says Maxim Bogdashkin, a Moody's Assistant Vice-President and lead analyst for the bank. Development Bank of Kazakhstan's relatively good capital cushion - with the ratio of shareholder's equity to total assets amounting to around 25% as at H1 2011, and high loan loss reserves of around 28% of total loans - provide some protection against further losses that are likely to materialise from its risky loan portfolio. Despite Development Bank of Kazakhstan's high reliance on wholesale market funding that constitutes up to 90% of its liabilities, Moody's sees remote refinancing risk for the bank due to the long-term nature of its funding. In addition, the bank maintains a large cushion of liquid assets on its balance sheet (65% of total assets). At the same time, Moody's notes that Development Bank of Kazakhstan's ratings remain constrained by the bank's business model of a government-directed, nationwide development bank that (i) implies weak asset quality and profitability due to the provision of early-stage financing to long-term investment projects, and (ii) resulted in the bank's high credit risk concentration, with 20 largest exposures exceeding 2x Tier 1 capital. Although the loans were granted to the largest local business groups and are relatively well collateralised, the rating agency expects Development Bank of Kazakhstan's asset quality to continue to gradually deteriorate in the medium term. In view of the above-mentioned risks that are embedded into Development Bank of Kazakhstan's mandate, as well as its high susceptibility to political and social pressures (rather than business necessities), the government's ongoing and extraordinary support is among key factors supporting the bank's issuer and debt ratings. As a result, Moody's cautions that if the bank's capital is allowed to deteriorate significantly from the current level, negative pressure could be exerted on its ratings. PRINCIPAL METHODOLOGIES The methodologies used in this rating were Bank Financial Strength Ratings: Global Methodology published in February 2007, and Government-Related Issuers: Methodology Update published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies. Headquartered in Astana, Kazakhstan, Development Bank of Kazakhstan reported total assets of KZT912 billion (US$6.2 billion) under unaudited IFRS as of H1 2011. The bank recorded a net loss of KZT13 billion (US$89 million) in H1 2011. REGULATORY DISCLOSURES For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com. Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating. Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process. Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery. Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information. Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating. Maxim Bogdashkin Asst Vice President - Analyst Financial Institutions Group Moody's Interfax Rating Agency 7th floor, Four Winds Plaza 21 1st Tverskaya-Yamskaya St. Moscow 125047 Russia Telephone: +7 495 228 6060 Facsimile: +7 495 228 6091 Yaroslav Sovgyra Associate Managing Director Financial Institutions Group Releasing Office: Moody's Investors Service Ltd. One Canada Square Canary Wharf London E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 [2011-12-05]