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Rating Action:

Moody's upgrades Halyk's deposit ratings to Baa3/P-3

03 Jun 2021

London, 03 June 2021 -- Moody's Investors Service ("Moody's") today upgraded Halyk Savings Bank of Kazakhstan's (Halyk) long-term bank deposit ratings to Baa3 from Ba1, local-currency senior unsecured debt rating to Ba2 from Ba3, short-term deposit ratings to Prime-3 from Not Prime, as well as the bank's Baseline Credit Assessment (BCA) and Adjusted BCA to ba2 from ba3. The bank's Counterparty Risk Ratings (CRRs) of Baa3/P-3 and Counterparty Risk Assessments (CRA) of Baa3(cr)/P-3(cr) were affirmed. Following the upgrade, the bank's long-term ratings carry a positive outlook.

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

RATINGS RATIONALE

BASELINE CREDIT ASSESSMENT (BCA) AND ADJUSTED BCA

The upgrade of the bank's BCA and Adjusted BCA to ba2 from ba3 recognizes the consistent improvements in Halyk's solvency profile along with strong liquidity and proven resilience of the bank's business model during the recent period of economic weakness caused by the global pandemic.

Despite the recent economic challenges and the contraction of the local economy by 2.6% in 2020, Halyk's ratio of problem loans (defined as "stage 3" and "POCI" loans) to gross loans declined to 12.3% as of year-end 2020 from 16% as of year-end 2019 while credit losses held at a relatively low level of 0.43% of average gross loans in 2020 (0.71% in 2019).

Along with the improving asset-quality trends, Halyk continued to generate strong profits, reporting 3.6% return on average assets in 2020 (3.7% in 2019). Moody's is now expecting that Halyk's relatively low-cost funding base and good operating efficiency will enable the bank to preserve its currently strong return on average assets of above 3% in 2021 and beyond.

As a result of strong profits and their partial retention, Moody's key measure of capital adequacy ratio, Tangible Common Equity to Risk-Weighted Assets, advanced to 20.3% as of year-end 2020 from 17.4% as of year-end 2019. Such a modest leverage and the ongoing strong profit generation secures a very strong resiliency of the bank's solvency metrics to absorb potential unexpected losses in the future.

The rating action also takes into account the bank's strong liquidity, with around half of Halyk's assets being invested in low-risk and relatively liquid instruments, such as government bonds or deposits held with the National Bank of Kazakhstan. Such asset profile not only supports asset quality but also translates into strong liquidity because of the bank's almost full funding reliance on capital and consistently growing customer accounts. The bank's deposit base has also demonstrated better granularity in the recent years as the bank's reliance on key group of customers has been decreasing.

DEPOSIT AND DEBT RATINGS, CRR and CRA

Because of Halyk's dominant market position with a market share of over 30% in terms of total assets and a recent track record of government support to depositors of large failed banks in Kazakhstan, Moody's continues to incorporate a "very high" level of government support into Halyk's deposit ratings, translating into two notches of rating uplift from the bank's Adjusted BCA. Therefore, the upgrade of the bank's Adjusted BCA has triggered a corresponding upgrade of the bank's deposit ratings by one notch to Baa3/P-3.

In contrast to deposits, Moody's continues to incorporate "low" level of government support into debt ratings assigned to all rated Kazakhstan banks, given the historical evidence of the largest banks' resolutions with bail-ins of unsecured creditors. Therefore, Halyk's senior unsecured debt rating continues to be positioned in line with the Adjusted BCA and was also correspondingly upgraded to Ba2 from Ba3.

The affirmation of the bank's Baa3(cr)/P-3(cr) Counterparty Risk Assessments and Baa3/P-3 Counterparty Risk Ratings recognizes the fact that these are already positioned at the rating level of the Government of Kazakhstan.

OUTLOOK

After the ratings upgrade, Halyk's long-term deposits and debt ratings carry a positive outlook. It recognizes the bank's strong and improving financial metrics and a likely scenario of operating environment improvements and potentially higher government support capacity that is currently captured in the positive outlook assigned to the sovereign ratings.

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

An upgrade of the sovereign ratings could lead to upgrade of the bank's long-term ratings. Further improvements in asset quality and/or in the coverage of problem loans by loan loss reserves together with a maintenance of strong profitability, capital adequacy and liquidity could also lead to an upgrade of the bank's BCA and debt rating.

Although currently considered to be an unlikely scenario, a substantial decline in capital adequacy, weaker liquidity or material asset quality problems could translate into lower ratings. Kazakhstan's lower sovereign ratings or changes in the country's political landscape leading to lower business volumes could also lead to a downgrade of the bank's long-term ratings.

LIST OF AFFECTED RATINGS

..Issuer: Halyk Savings Bank of Kazakhstan

Upgrades:

....Adjusted Baseline Credit Assessment, Upgraded to ba2 from ba3

....Baseline Credit Assessment, Upgraded to ba2 from ba3

....Short-term Bank Deposit Ratings, Upgraded to P-3 from NP

....Senior Unsecured Regular Bond/Debenture, Upgraded to Ba2 from Ba3, Outlook Changed To Positive From Stable

....Long-term Bank Deposit Ratings, Upgraded to Baa3 from Ba1, Outlook Remains Positive

Affirmations:

....Short-term Counterparty Risk Assessment, Affirmed P-3(cr)

....Long-term Counterparty Risk Assessment, Affirmed Baa3(cr)

....Short-term Counterparty Risk Ratings, Affirmed P-3

....Long-term Counterparty Risk Ratings, Affirmed Baa3

Outlook Action:

....Outlook, Changed To Positive From Positive(m)

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in March 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1261354. 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_1263068.

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.

Semyon Isakov
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Limited, Russian Branch
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21 1st Tverskaya-Yamskaya St.
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Russia
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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:
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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.

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