S&P assigns credit ratings to Subsidiary organization Bank VTB (Kazakhstan); outlook Stable
27.09.13 18:47
/Standard & Poor's, Moscow, September 27, 13, heading by KASE/ – Standard &
Poor's Ratings Services assigned its 'BBB-' long-term and 'A-3' short-term
counterparty credit ratings to Kazakhstan-based VTB Bank (Kazakhstan) (VTB
Kaz). The outlook is stable.
At the same time, we assigned our 'kzAA' Kazakhstan national scale rating to
the bank.
We consider VTB Kaz to be a "highly strategic" subsidiary of Russia-based VTB
Bank (JSC) because the Kazakhstan market is an important part of the group's
expansion strategy, VTB Kaz's operations are highly integrated with those of the
group, and the parent has committed support under any foreseeable
circumstances.
Despite its small size--less than 1% of VTB's total assets--we believe
integration is strong because:
- VTB Kaz is a greenfield investment and not an acquisition; its IT
infrastructure, risk management, and underwriting process have been built
in line with VTB's own practices. This makes it difficult to detach the bank
from the rest of the group;
- VTB Kaz is 100%-owned by VTB and shares its name and branding;
- VTB Bank provides close to 9% of the subsidiary's funding;
- The start-up nature of VTB Kaz makes the bank dependent on VTB for business
growth, notably for capital and access to creditworthy clients; and
- The strong ties between Russia and Kazakhstan, economically and politically,
make it very unlikely that state-owned VTB Bank would dispose of its
subsidiary, despite forecast weak operating performance.
In accordance with our criteria, we rate VTB Kaz one notch below the level of
the group credit profile for VTB, which is 'BBB'. We view the stand-alone credit
profile (SACP) of VTB Kaz at 'b', reflecting:
- The 'bb-' anchor for a bank operating primarily in Kazakhstan.
- Its "moderate" business position. The bank has a short track record of
existence, limited market share, and the success of its expansion strategy is
still to be proven. These factors are partly balanced by its parent's support
both through funding and operational maintenance. We also view the group's
brand name as a positive business factor. With an asset base of Kazakhstani
tenge (KZT) 131 billion as of Aug. 1, 2013, VTB Kaz holds the 20th position in
the Kazakhstan banking sector, but we expect it to gain market shares rapidly.
- Its "moderate" capital and earnings. We expect its risk-adjusted capital ratio
before adjustments to decline to 5.0%-5.5% over the next 12-18 months,
reflecting slowing loan growth and only marginal profits. The forecast is
based on our expectation of 25% asset growth in 2013 and 20% in 2014. We
think that such growth will translate into profits for the bank, though, which
is the main goal of management and shareholders.
- Its "moderate" risk position, which balances significant concentrations and
our expectation of lowering growth rates with relatively good portfolio
performance and risk management policies that are fully integrated with the
parent's. Corporate loans comprised 77% of the bank's credit portfolio as of
end-March 2013. We note good industry diversification of the corporate loan
book, with 36.4% exposure to the trade industry. Individual loan
concentrations as a percentage of total adjusted capital are high, but
comparable with those of Kazakh peers, and we expect them to fall in line
with VTB Kaz's growth plans. The bank's current asset quality metrics are
better than the domestic system average.
- Its "average" funding and "adequate" liquidity, reflecting a diversified
funding base and a strong liquidity buffer. The funding profile is well
diversified, with a dominant portion coming from customer deposits. We also
believe ongoing funding support from the parent reduces refinancing risks.
Funding from the parent accounted for 9.05% of the total as of Dec. 31, 2012.
But management aims to operate on a self-funding basis, so we expect the
bank's assets-to-liabilities profile to strengthen in the next 12-24 months.
The stable outlook mirrors our outlook on the parent. We assume that VTB Kaz
will remain a "highly strategic" subsidiary of VTB Bank) and continue to receive
operational, managerial, and financial support from its parent under almost all
foreseeable circumstances.
Positive or negative rating actions on parent VTB Bank will likely result in
parallel actions on VTB Kaz because, in accordance with our criteria, we rate
"highly strategic" subsidiaries one notch below the group credit profile of the
parent. Even though a slight improvement or deterioration of the SACP would
not, in isolation, result in a rating change, we expect VTB Kaz's financial
profile to gradually improve as the bank attains a larger scale. Any long
period of underperformance or inability to reach the profitability or
self-financing goals imposed by the parent could lead us to reconsider the
"highly strategic" status, and therefore lower the ratings.
Primary Credit Analyst:
Kirill Lukashuk, Moscow, (495) 783-4061;
kirill.lukashuk@standardandpoors.com
Secondary Contact:
Natalia Yalovskaya, Moscow, (7) 495-783-4097;
natalia.yalovskaya@standardandpoors.com
[2013-09-27]