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Rating Action:

Moody's affirms Bakai Bank's B3 deposit ratings, maintains negative outlook

01 Feb 2022

London, 01 February 2022 -- Moody's Investors Service ("Moody's") has affirmed the B3 long-term local and foreign currency deposit ratings of Kyrgyzstan based Bakai Bank OJSC (Bakai Bank) and the NP short-term local and foreign currency deposit ratings. Moody's has also affirmed its b3 Baseline Credit Assessment (BCA) and Adjusted BCA, B2 long-term local currency and NP short-term Counterparty Risk Ratings (CRR) and B2(cr) long-term and NP(cr) short-term Counterparty Risk Assessments (CR Assessment). Moody's also downgraded its long-term foreign currency CRR to B3 following the change in foreign currency ceiling to B3 from B2.

At the same time Moody's has maintained the negative outlook on the bank's long-term deposit ratings.

The rating action follows Moody's downgrade of Kyrgyzstan's sovereign debt rating to B3 stable from B2 negative on January 25, 2022 and change in Kyrgyzstan's Macro Profile to 'Very Weak' from 'Very Weak+'.

A full list of affected ratings is provided at the end of this press release.

RATINGS RATIONALE

THE CHANGE IN KYRGYZSTAN's MACRO PROFILE TO 'VERY WEAK' FROM 'VERY WEAK+' EXERTS DOWNWARD PRESSURE ON BANK'S BCAs

Moody's rating methodology for banks includes an assessment of each individual country's operating environment, expressed as a Macro Profile, which is designed to capture system-wide factors that are predictive of the propensity of banks to fail. The Macro Profile assigned to each bank informs the financial factors, which are key inputs into the determination of each bank's BCA.

Moody's has changed Kyrgyzstan banking system's Macro Profile to "Very Weak" from "Very Weak+" reflecting slow economic recovery in Kyrgyzstan and Moody's view that economic strength is likely to weaken which may negatively affect the medium-term economic growth.

BANK-SPECIFIC FACTORS

The affirmation of Bakai Bank's B3 local and foreign currency deposit ratings with negative outlook follows a downgrade of Kyrgyz Republic's ratings to B3 stable from B2 negative and the downward revision of the Kyrgyzstan banking system's Macro Profile to "Very Weak" from "Very Weak+".

At the same time Bakai Bank's b3 BCA remains supported by the bank's ample liquidity and its robust loss-absorption capacity underpinned by the bank's solid capital position and strengthened pre-provision income which currently provides a good buffer for absorbing expected credit losses.

Moody's estimates that Bakai Bank's problem loans will stabilize at around 5% of gross loans in the next 12-18 months (6.3% in 2020) helped by the stabilized operating environment. However, further improvements of asset quality could be constrained by slow economic recovery and weakened local currency in Kyrgyzstan which could undermine the debt repayment capacity of the bank's borrowers.

According to the local unaudited GAAP, Bakai Bank reported a net profit of KGS327.5 million for 2021 (KGZ114 million in 2020), which translates into net income-to-tangible assets ratio of 1.3% (0.6% in 2020). In the next 12-18 months, Bakai Bank's profitability will continue to benefit from lower cost of risk amid reduced asset risk, stabilised operating environment, recovering business activity and its increased scale of operations following the merger with BTA Bank. However, further profitability prospects could be constrained by weakened economic strength in Kyrgyzstan.

Following the merger in 2020, Bakai Bank's capital position materially improved driven by highly capitalized BTA Bank. Moody's estimates that Bakai Bank's tangible common equity (TCE) ratio was around 17% in 2021 (20.4% in 2020) and the rating agency expects the ratio to stay at around 16% in the next 12 months.

Bakai Bank's liquidity and funding profiles have been currently stable and remain supported by its ample liquidity buffer and its limited reliance on market funding.

NEGATIVE OUTLOOK

The negative outlook on Bakai Bank's long-term deposit ratings reflects existing downside risks to the bank's standalone financial profile stemming from the weakened economic strength and slow economic recovery in Kyrgyzstan which could exert pressure on the bank's credit fundamentals, impairing business opportunities, constraining profitability prospects.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Bakai Bank's deposit ratings will not likely be upgraded in next 12-18 months given the negative outlook, however, Moody's could change outlook to stable if the bank maintains solid asset quality, capital position and sustain improving profitability trend. Negative pressure could be exerted on Bakai Bank if the bank reports weaker financial fundamentals than Moody's currently anticipated.

LIST OF AFFECTED RATINGS

..Issuer: Bakai Bank OJSC

Downgrade:

....Long-term Counterparty Risk Rating (Foreign Currency), Downgraded to B3 from B2

Affirmations:

....Adjusted Baseline Credit Assessment, Affirmed b3

....Baseline Credit Assessment, Affirmed b3

....Long-term Counterparty Risk Assessment, Affirmed B2(cr)

....Short-term Counterparty Risk Assessment, Affirmed NP(cr)

....Long-term Counterparty Risk Rating (Local Currency), Affirmed B2

....Short-term Counterparty Risk Ratings, Affirmed NP

....Short-term Bank Deposit Ratings, Affirmed NP

....Long-term Bank Deposit Ratings, Affirmed B3, Outlook Remains Negative

Outlook Action:

....Outlook, Remains Negative

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Lev Dorf
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Yaroslav Sovgyra, CFA
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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