Fitch affirms long-term term default ratings of Subsidiary Bank Alfa-Bank at "B+" and AsiaCredit Bank at "B", stable outlook

/Fitch Ratings, Moscow, April 14, 15, KASE heading/ – Fitch Ratings has affirmed the Long-term Issuer Default Ratings (IDRs) of JSC SB Alfa Bank Kazakhstan (ABK) at 'B+' and AsiaCredit Bank JSC (ACB) at 'B'. The Outlooks are Stable. A full list of rating actions is available at the end of this commentary. KEY RATING DRIVERS - IDRs, VRs, NATIONAL AND DEBT RATINGS The banks' IDRs and National Ratings are based on the banks' individual strength, which in turn is reflected in their Viability Ratings (VRs). The VRs reflect the banks' small, albeit growing, franchises, relatively moderate loss absorption capacity (tighter at ACB) in light of fast recent growth and seasoning loan book, and high concentrations on both sides of the balance sheet. The VRs also take into account the banks' reasonable liquidity positions, strong profitability (ABK), and track record of equity injections provided by the shareholder and the agency's expectation that these will continue (ACB). Seasoning of the loan book has resulted in an increase in non-performing loans (NPLs, 90 days overdue) at ABK to 5.2% at end-9M14 (1.2% at end-2013) and at ACB to 9.7% at end-2014 (2013: 4.1%). ABK also had about 6% of restructured loans compared with only 0.6% at ACB. However, ACB has weaker coverage, with unreserved NPLs amounting to 39% of its Fitch core capital (FCC) at end-2014, while ABK's NPLs were 1.2x covered by reserves. The increase in ACB's NPLs was mainly driven by two large defaults (together KZT5bn or 5% of gross end-2014 loans). In Fitch's view, both exposures may require additional provisioning given the low current level of reserves of 3% and 18%, respectively, at end-2014. A further 0.5x FCC was extended to related parties or in transactions that in Fitch's view, have questionable economic value for the bank, although most of these were reasonably secured by collateral. The risk profile of the largest exposures is ge t Rating of '4' reflects Fitch's view of the limited probability of support that might be forthcoming from ABR and/or other group entities, if needed. In Fitch's view, support may be forthcoming in light of the common branding, potential reputational risk of any default at ABK and the small cost of any support that may be required. At the same time, Fitch views ABR's propensity to provide support as limited because (i) it holds shares in ABK on behalf of ABH Holdings S.A.(ABHH), to which it has ceded control and voting rights through a call option, under which ABHH may acquire 100% of ABK from ABH Financial Limited (entity controlling 100% of ABR) until end-December 2016; (ii) limited operational integration between ABK and ABR; and (iii) ABR's tight regulatory capital preventing it from providing capital to the subsidiary. Support from other Alfa Group entities, in Fitch's view, also cannot always be relied on due to ABK's small size. As a result, support could be withheld under certain circumstances, especially in a systemic financial crisis in Kazakhstan. Fitch notes ABHH's failure to provide full support to its Ukraine-based subsidiary PJSC Alfa- Bank (ABU; CCC) in 2008. However, the agency believes there is a lower probability of Alfa Group not supporting ABK, relative to ABU. This is reflected in ABK's higher Support Rating '4' compared with ABU's of '5'. KEY RATING DRIVERS - ACB's SUPPORT RATING AND SUPPORT RATING FLOOR ACB's Support Rating of '5' reflects Fitch's view that support from the bank's private shareholder, although possible, cannot be reliably assessed. The Support Rating Floor of 'No Floor' is based on ACB's low systemic importance. RATING SENSITIVITIES Strengthening of their franchises while maintaining reasonable asset quality and performance would be positive for the banks' ratings. A downgrade could result from deterioration of asset quality and capitalisation, as well as (although less likely) significant deposit outflows, absent of sufficient and timely equity and/or liquidity support from shareholders. The rating actions are as follows: JSC SB Alfa Bank Kazakhstan: Long-term foreign currency IDR affirmed at 'B+'; Outlook Stable Short-term foreign currency IDR affirmed at 'B' Long-term local currency IDR affirmed at 'B+'; Outlook Stable National Long-term rating affirmed at 'BBB(kaz)'; Outlook Stable Viability Rating affirmed at 'b+' Support Rating affirmed at '4' Senior unsecured debt: affirmed at 'B+', Recovery Rating 'RR4' National senior unsecured debt rating: affirmed at 'BBB(kaz)' JSC AsiaCredit Bank Long-term foreign currency IDR: affirmed at 'B'; Outlook Stable Short-term foreign currency IDR: affirmed at 'B' Long-term local currency IDR: affirmed at 'B'; Outlook Stable National Long-term rating: affirmed at 'BB(kaz)'; Outlook Stable Viability Rating: affirmed at 'b' Support Rating: affirmed at '5' Support Rating Floor: affirmed at 'No Floor' Senior unsecured debt: affirmed at 'B', Recovery Rating 'RR4' National senior unsecured debt rating: affirmed at 'BB(kaz)' Contacts: Primary Analysts Konstantin Yakimovich (ABK) Associate Director +7 495 956 9978 Fitch Ratings CIS Limited 26 Valovaya Street Moscow 115054 Roman Kornev (ACB) Director +7 495 956 7016 Fitch Ratings CIS Limited 26 Valovaya Street Moscow 115054 Secondary Analysts Timur Lebedev (ABK) Analyst +7 495 956 9983 Konstantin Yakimovich (ACB) Associate Director +7 495 956 9978 Committee Chairperson Olga Ignatieva Senior Director +7 495 956 6906 Moscow media contacts: Julia Belskaya Von Tell, Tel: +44 203 530 1153, Tel.: + 7 495 956 9908/9901, julia.belskayavontell@fitchratings.com [2015-04-15]