We reiterate our HOLD recommendation on ATFBank's bonds. Despite the improvement of profitability indicators in 1Q2016 compared to the same period last year, profitability remains low. We note the weak asset quality and decreased Tier-1 ratio in 2015 compared to 2014. We believe that the weak capitalization will restrain lending and expect further write-offs of non-performing loans in case of a significant NPLs growth.

1Q2016 results

Significant growth in net interest and commission income led to fivefold yoy increase in 1Q2016 net income. At the same time, interest expenses and the cost of risk (impairment charge/total loans) rose compared to 1Q2015. Profitability indicators remain low. Term deposit with the National Bank of Kazakhstan offset a decline in gross loans in 1Q2016.

2015 results

ATFBank was actively writing off non-performing loans, for which debt collection was impossible. The amount of recovered loans rose in 2015 compared to the previous year.  Asset quality remained weak. We believe that weak capitalization will restrain loan originating and is likely to lead to further loans write-offs in case of substantial NPLs growth.

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