On October 20, Eurasian Bank announced that it signed an agreement to acquire 100% stake in BankPositiv Kazakhstan from a Turkish bank. 

The transaction is expected to be completed by the end of the year subject to a receipt an approval from the regulator. According to the head of Eurasian Bank, Michael Eggleton, the acquisition of BankPositiv allows to increase an equity by T2,5 – 3,0bn and profitability of the bank. Shareholders of the bank also decided to inject additional equity of T6bn bringing it to T92bn (T71bn as of the end of August according to the regulator’s data), which will increase Tier-1 capital ratio (k1-1) to 9.3% (8.5% at end August). Bank considers issuing subordinated bonds in the amount of T30bn which will allow raising the total capital adequacy ratio (k2).

At the end of August 2015, non-performing loans of Eurasian bank stood at T65.2bn or 10.4% of gross loans, while a provision coverage ratio was at 56%. Bank expects to increase this ratio to 100% by the end of the year, which would have a negative impact on the bank’s profitability.

Our view

We view the additional capital contribution as positive to the bank’s credit profile. However, we do not expect an increase in the bank’s profitability given high funding costs and deterioration of asset quality. The tendency of consolidation in the banking sector continues in anticipation of the tighter regulatory capital requirements. Foreign banks continue to close up their branches which is observed not only in Kazakhstan, for the purpose of cost optimization and focus on their main market.   

BankPositiv is the 31th largest bank in Kazakhstan. According to the regulator’s data, at the end of August 2015 assets amounted to T21bn, loan portfolio – T14bn, deposits – T9bn. Overdue loans comprised 6.5% of total loan portfolio, while provisions - 9.4%. The 12M RoAE was at 5.3% in August.