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Rating Action:

Moody's downgrades ATF Bank's deposit and debt ratings; negative outlook

29 Oct 2013

London, 29 October 2013 -- Moody's Investors Service has today downgraded the following ratings of ATF Bank: long-term local- and foreign-currency deposit ratings to Caa1 from B3; foreign-currency senior unsecured debt rating to Caa2 from Caa1;and foreign-currency junior subordinated debt rating to Ca (hyb) from Caa3 (hyb). Concurrently, Moody's affirmed ATF Bank's E standalone bank financial strength rating (BFSR) and lowered the corresponding baseline credit assessment (BCA) to caa2 from caa1. The bank's Not Prime short-term local- and foreign-currency deposit ratings were affirmed. The outlook on the deposit and debt ratings was changed to negative from stable, whilst the BFSR continues to carry a stable outlook.

Moody's assessment of the issuer's ratings is largely based on ATF Bank's audited financial statements for 2012 and H1 2013, prepared under IFRS as well as information received from the bank.

The list of the affected ratings can be found at the end of this press release.

RATINGS RATIONALE

The downgrade of ATF Bank's ratings reflects the ongoing deterioration of the bank's credit profile as evidenced by the bank's audited H1 2013 IFRS statement.

In H1 2013, ATF Bank's Tier 1 capital declined to KZT66.9 billion ($441 million) from KZT77.2 billion. The bank's Tier 1 ratio at 30 June 2013 was at a relatively weak level of 9.7%(year-end 2012: 13.4%) and, in Moody's view, might be deficient to absorb the negative pressure caused by: (1) the high level of problem loans; (2) weak loan loss reserve coverage; and (3) loss-making operations with a rapidly deteriorating pre-provision income.

In H1 2013, the volume of ATF Bank's overdue loans increased to 53% of gross loan and reached KZT430 billion (year-end 2012: KZT418 billion). Over the same period, the volume of problem loans (defined as loans individually impaired in the corporate and SME segment, and loans overdue by more than 90 days in the retail segment) also marginally increased to KZT489 billion (year-end 2012: KZT488 billion), and accounted for 60% of gross loans as at 30 June 2013. Although loan loss reserves also increased, the coverage of overdue loans with loan loss reserves declined marginally to 65% (year-end 2012: 66%). Moody's continues to view ATF Bank's loan loss reserves as largely deficient under the rating agency's stress-test scenario; therefore, ATF Bank is exposed to the risk of significant credit losses. The difference between the volume of problem loans and loan loss reserves was KZT208 billion as at 30 June 2013, which is considerably above KZT66.9 billion of Tier 1 capital reported as at end-June 2013. In addition, deferred tax assets accounted for 12% of the bank's Tier 1 capital, which further undermines its quality given the KZT4.2 billion loss reported in H1 2013.

ATF Bank's pre-provision income also deteriorated in H1 2013, as the performing loan book (gross loan book minus problem loans) contracted by 13% triggering a significant drop of net interest income and revenue, while operating expenses grew by 9% (H1 2013 vs. H1 2012). The bank's ability to recover capital was materially weakened by the 72% decline of pre-provision income (H1 2013 vs. H1 2012) with, in Moody's view, moderate prospects for its recovery in the next 12-18 months, thereby rendering the bank's capital adequacy position highly vulnerable over the next 12 to 18 months.

Moody's also notes the scheduled $0.4 billion repayments of wholesale debts that are due in early 2014. These repayments accounted for about one half of ATF Bank's highly liquid assets(cash and cash equivalents) as at 30 June 2013, and exert downward pressure on the bank's ability to grow its loan book in order to boost earnings.

ATF Bank's ratings also reflect its relative importance to the banking system as the sixth-largest bank in Kazakhstan by total assets, according to the National Bank of Kazakhstan. Moody's therefore incorporates a low probability of systemic support in the bank's Caa1 deposit ratings, which provides one notch of uplift from its caa2 BCA. However, Moody's does not assume any systemic support in ATF Bank's debt ratings, which reflects the Kazakh government's track record of not providing support to debt holders of systemically important banks in rescue programmes.

In light of the above-mentioned deterioration of the pre-provision income, ATF Bank credit profile might weaken further in the next 12-18 months, i.e., as reflected in the negative outlook on its debt and deposit ratings.

WHAT COULD MOVE THE RATINGS UP/DOWN

In light of the negative outlook, upward rating pressure is limited. The rating agency notes that any further deterioration in ATF Bank's asset quality and profitability, leading to a further impairment of the bank's capital base, could result in a downgrade of its ratings.

LIST OF AFFECTED RATINGS

ATF Bank

- Long-term foreign and local-currency deposit ratings downgraded to Caa1 from B3; negative outlook

- Long-term foreign-currency senior unsecured debt rating downgraded to Caa2 from Caa1; negative outlook

- Long-term foreign currency junior subordinated debt rating downgraded to Ca(hyb) from Caa3(hyb); negative outlook

- Short-term debt and deposit ratings of Not Prime, affirmed

- BFSR of E, affirmed; stable outlook

ATF Capital BV (special-purpose vehicle)

- Long-term foreign-currency senior unsecured debt rating downgraded to Caa2 from Caa1; negative outlook

The principal methodology used in this rating was Global Banks published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in Almaty, Kazakhstan, ATF Bank reported total assets of KZT758 billion ($5.0 billion), shareholders' equity of KZT 68 billion ($448 million), and net loss of KZT4.2 billion ($27 million), as of end-H1 2013, according to the bank's audited IFRS financial statements.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

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

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.

Semyon Isakov
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

Yves Lemay
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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Moody's downgrades ATF Bank's deposit and debt ratings; negative outlook
No Related Data.
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