On October 2, Moody's downgraded local and foreign-currency senior unsecured debt ratings of Alliance from Caa2 to Ca with a developing outlook and CenterCredit from B2 to B3 with a stable outlook. At the same time, the agency affirmed Kazkommertsbank's foreign-currency senior unsecured debt rating of Caa1 and upgraded the outlook to stable from negative.
The downgrade of Alliance's ratings was driven by a reduction of the bank's loss absorption capacity and a decline of liquidity. The agency referred to the bank's undercapitalization, weak profit generation capacity and lack of provision coverage. As of end-June 2013 Alliance's equity (IFRS) declined even further to 1.54% of assets from 1.89% as of end-2012. The bank's paper-thin net interest margin and low fee and commission income barely cover its operating costs, resulting in subdued return on assets of 0.04% in 1H2013. As of end-June 2013 provisions amounted to just 41% of gross loans while 90+overdue loans accounted for 49%. According to the agency, the bank's reliance on short-term funding and weak liquidity position puts additional pressure on its prospects. Liquidity excluding pledged assets declined to 9.1% as of June 2013 from 15.7% a year ago. The developing outlook on the bank's ratings reflects the uncertainty over the possible sale of Alliance by the government to a private party. Yesterday, the local Vlast media agency reported, citing an unidentified source in the government, that Bulat Utemuratov, former owner of ATF Bank, would acquire Alliance at a significant discount as capital injection was needed after the acquisition.
The downgrade of CenterCredit's ratings was also driven by reduction of the bank's loss absorption capacity due to declining capitalization, poor asset quality and high credit concentration. As of end-June the bank's IFRS equity slid to 8% of assets from 8.2% at the end of 2012. The agency estimated CenterCredit's 90+days overdue and restructured loans at 23% of gross loans, while provisions amounted to just 15.9% of gross loans as of end-June 2013. The bank's ratings are supported by sufficient liquidity (a quarter of assets) and moderate funding concentration. Moody's does not incorporate support from neither the government nor Kookmin Bank into CenterCredit's debt ratings given Kookmin's non-control stake and "the limited strategic fit of two financial institutions".
The upgrade of outlook on Kazkommertsbank's ratings reflects Moody's view of a significant reduction of the bank's ratings downside risks thanks to stabilizing profitability, improved provision coverage, sufficient liquidity position and noticeable excess of capital. Provision coverage increased to 67% of bad loans, including restructured ones, as of end-June 2013 from 55% a year ago, Moody's estimated. Last week S&P downgraded both Alliance and KKB by one notch to 'B' and 'CCC+', respectively. The S&P's rating action on KKB was justified by poor results of recovering bad loans.