Debt ratings are downgraded to B2/Caa1 with a negative outlook
Moscow, April 18, 2011 -- Moody's Investors Service has today downgraded the long-term
foreign-currency deposit rating of Bank CenterCredit (BCC) to B1
from Ba3. BCC's global long-term local and foreign-currency
senior unsecured debt ratings were also downgraded to B2 from Ba3 and
B1, respectively, and its junior subordinated foreign-currency
debt rating to Caa1(Hyb) from B3(Hyb). Concurrently, Moody's
assigned B1/Not Prime local-currency deposit ratings to the bank.
The rating actions follow Moody's assessment of BCC's audited
financial statements for 2010, prepared under IFRS.
At the same time, BCC's Not Prime short-term foreign-currency
deposit ratings and its E+ stand-alone bank financial strength
rating (BFSR) were affirmed, but the BFSR was remapped to B2 on
the long-term scale from B1. The outlook on the BFSR ratings
is stable, while the deposit and debt ratings carry a negative outlook.
RATINGS RATIONALE
The downgrade of BCC's debt and deposit ratings reflects weakening
of the bank's stand-alone financial rating (BFSR) within
the E+ category, now mapping to a long-term rating scale
of B2. "The deterioration of the bank's financial profile
stems primarily from the considerable weakening of the bank's capital
position over the recent period due to ongoing impairment in the loan
book," says Semyon Isakov, a Moody's Assistant
Vice-President and lead analyst for the bank. "In
addition, a material deterioration of BCC's net interest margin
in 2010 led to negative operating efficiency in the most recent financial
quarter, which prevented it from absorbing mounting credit losses
and created additional negative pressure on the bank's capital adequacy,"
adds Mr. Isakov.
At end-February 2011, BCC's level of overdue loans
increased to 20.2% of its gross loan book while the level
of loan loss reserves was 14.9% in accordance with regulatory
data. In addition, Moody's notes that KZT64.6
billion (US$438 million) or 8.1% of the gross loan
book was restructured, otherwise these loans would be past due or
impaired in accordance with the bank's IFRS as at YE2010.
In 2010, BCC's net interest margin shrank considerably to
1.2% (2009: 3.5%, 2008:
4.7%), reflecting the high level of non-performing
loans, declining yields in the sector and the negative result from
excessive liquidity as the customer deposit base grew rapidly compared
to the loan book. In the second half of 2010, weak net interest
margin negatively impacted BCC's overall operating performance,
resulting in losses at the pre-provision level.
Given the above-mentioned concerns, Moody's considers
the 7.6% equity-to-assets ratio -- as
reported under the local regulatory standards -- to be weak against
the background of ongoing negative pressure stemming from the bank's
currently negative operating performance and high level of problem loans
in the loan book that could potentially lead to a further notable deterioration
in the bank's capital profile.
BCC is currently planning to address the above-mentioned issues
by: (i) targeting 10% growth of the loan book in 2011;
(ii) decreasing the level of expensive customer funding; (iii) investing
its low-yield liquid assets in assets with higher returns and (iv)
is anticipating recovery in already created loan loss reserves.
However, Moody's said that it has yet to see the positive
effect from these measures given the challenges faced by Kazakh banks,
i.e. subdued demand for new loans, low interest rates
due to strong competition and excessive liquidity in the sector,
and lack of clear evidence of recovery in the value of underlying assets.
Notwithstanding the above-mentioned concerns, Moody's
notes that BCC's stand-alone financial profile is underpinned
by a healthy liquidity profile due to the high cushion of liquid assets(cash
and government bonds) that amounted to KZT462 billion(US$3.1
billion) or 37.7% of the bank's IFRS total assets
at YE2010.
The negative outlook on BCC's debt and deposit ratings reflects
ongoing pressure on the bank's stand-alone financial profile
that could, in the short to medium term, warrant a downwards
adjustment in BCC's mapping of the E+ BFSR to the long-term
rating scale by one notch if the bank's capital position continued
to deteriorate.
The assigned B1/Not Prime local-currency deposit ratings are at
the same level with BCC's foreign-currency deposit ratings
and are based on the bank's E+ BFSR( now mapping to a long-term
rating scale of B2) and low probability of systemic support.
The principal methodologies used in this rating were Bank Financial Strength
Ratings: Global Methodology published in February 2007, Incorporation
of Joint-Default Analysis into Moody's Bank Ratings: A Refined
Methodology published in March 2007, and Moody's Guidelines
for Rating Bank Hybrid Securities and Subordinated debt published in November
2009.
Headquartered in Almaty, Kazakhstan, BCC reported --
under IFRS -- total assets of KZT1.224 trillion (US$8.3
billion) and shareholders' equity of KZT84.7 billion (US$
575 million). Net loss for 2010 was KZT31 billion (US$208
million).
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Moscow
Semyon Isakov
Asst Vice President - Analyst
Financial Institutions Group
Moody's Eastern Europe LLC
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091
Moscow
Yaroslav Sovgyra
VP - Senior Credit Officer
Financial Institutions Group
Moody's Eastern Europe LLC
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091
Moody's Eastern Europe LLC
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091
Moody's downgrades Bank CenterCredit to B1; negative outlook (Kazakhstan)
