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Rating Action:

Moody's upgrades ForteBank's deposit ratings to Ba3, outlook stable

15 Dec 2020

London, 15 December 2020 -- Moody's Investors Service ("Moody's") today upgraded the long-term bank deposit ratings of ForteBank JSC (ForteBank) to Ba3 from B1, its long-term Counterparty Risk Ratings (CRRs) to Ba2 from Ba3, subordinated debt rating to B3 from Caa1 as well as the bank's Baseline Credit Assessment (BCA) and Adjusted BCA to b2 from b3. In addition, the bank's long-term Counterparty Risk Assessment (CR Assessment) was upgraded to Ba2(cr) from Ba3(cr). The bank's short-term foreign currency bank deposit rating and CRRs were affirmed at Not Prime as well as the short-term CR Assessment at Not Prime(cr). The outlook on the long-term ratings is stable.

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

RATINGS RATIONALE

The upgrade of ForteBank's ratings recognizes the consistent improvements of its solvency metrics along with strong liquidity and resilience of the bank's revenues to business pressures related to the coronavirus containment measures and the economic contraction in Kazakhstan.

ForteBank displayed strong profits and modest loan growth in recent years, which enabled the bank to notably improve its solvency and materially reduce uncertainties surrounding its historically high level of problem loans. The bank's ratio of problem loans to tangible common equity and loan loss reserves stood at 61% as of 30 September 2020, having improved from 87% as of year-end 2017. The improvements were achieved through the gradual increase of problem loans coverage with loan loss reserves as well as the capital build up, owing to the bank's strong profitability in recent years.

In the first 9 months of 2020, the bank reported annualized net income at around 2.8% of average tangible assets, a stronger level compared to 2.3% in 2019 and 1.9% in 2018. Despite the ongoing coronavirus containment measures, Moody's is now expecting ForteBank's to remain profitable in 2021 and beyond, but profitability is expected to normalize at a lower level compared to this year's strong earnings.

ForteBank's capital adequacy has been strong to date, with tangible common equity to risk-weighted assets at 17.0% as of 30 September 2020 and regulatory capital ratios being well above the required minima.

ForteBank's liquidity also remains healthy. The bank was rapidly growing its deposit base while being conservative with loan origination in the most recent years. As a result, loan-to-deposit ratio declined to 60% at 30 September 2020 from 64% in 2019 and 71% in 2018, with liquid banking assets standing at around 40% of tangible banking assets, providing comfortable cushion to face potential liquidity headwinds.

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

Further improvement in asset quality and/or in the coverage of problem loans by loan loss reserves together with a maintenance of good profitability, capital adequacy and liquidity could lead to a rating upgrade. A decline in capital adequacy, weaker liquidity or material asset quality problems could lead to lower ratings. A reduction in the probability of government support could also lead to a downgrade of the long-term ratings.

LIST OF AFFECTED RATINGS

..Issuer: ForteBank JSC

Upgrades:

....Adjusted Baseline Credit Assessment, Upgraded to b2 from b3

....Baseline Credit Assessment, Upgraded to b2 from b3

....Long-term Counterparty Risk Assessment, Upgraded to Ba2(cr) from Ba3(cr)

....Long-term Counterparty Risk Ratings, Upgraded to Ba2 from Ba3

....Subordinate Regular Bond/Debenture, Upgraded to B3 from Caa1

....Long-term Bank Deposit Ratings, Upgraded to Ba3 from B1, Outlook Remains Stable

Affirmations:

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

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

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

Outlook Action:

....Outlook, Remains Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. 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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

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
Vice President - Senior 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

Nicholas Hill
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
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JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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