(The following statement was released by the rating agency)
MOSCOW/LONDON, September 23 (Fitch) Fitch Ratings says it does not expect to
take any rating action on Kazakhstan's Alliance Bank JSC following the approval
by the National Bank of Kazakhstan (NBK) of a recapitalisation plan for the
bank. Alliance's 'CCC' Long-term IDR continues to reflect the bank's weak
solvency and considerable uncertainty in respect to continued support from the
In its H113 IFRS accounts, Alliance disclosed that the NBK had approved the
bank's seven-year recapitalisation plan. The adoption of the plan in turn
enabled the NBK to provide Alliance with a waiver, valid to end-2015, with
respect to compliance with the regulatory open currency position limit, which
the bank breached at end-H113.
Fitch has not so far been provided with a copy of the recapitalisation plan and
has only received limited information on its contents. However, the agency's
current understanding is that adoption of the plan more likely represents formal
fulfilment of a requirement for granting Alliance waivers on regulatory
breaches, rather than any firm commitment to provide capital to the bank. As
such, the agency views the plan as only marginally positive, in that it seems to
confirm the authorities' readiness to continue extending regulatory forbearance
to the bank, at least in the near term pending a decision on the bank's
resolution. However, adoption of the plan is neutral for the bank's ratings,
given the absence of any public commitment of the Kazakh authorities or any
potential new shareholder to provide capital support.
Alliance has so far avoided breaching minimum regulatory capital ratios
primarily as a result of booking significantly lower loan impairment reserves in
its statutory accounts than in its IFRS statements. At end-H113, the difference
was KZT31bn, equal to 5.9% of regulatory risk weighted assets, and the
regulatory tier 1 and total capital ratios were 9.9% and 13.2%, respectively
(Basel I ratios: 2.5% and 5.0%). In accordance with a new Kazakh bank
regulation, adopted in July 2013, local banks were obliged to equalise their
statutory reserves with those under IFRS level as of 1 August 2013. However,
Alliance increased its reserves by only KZT5bn at this date, and Fitch believes
the NBK's tolerance of still markedly different statutory and IFRS provision
levels at Alliance may also be a result of the adoption of the bank's
Fitch downgraded Alliance's Long-term IDR to 'CCC' in May 2013, reflecting the
agency's view that a new restructuring of the bank's liabilities has become a
real possibility. This view was based on (i) the plan of the major shareholder,
National Wealth Fund Samruk Kazyna (SK), to sell the bank; (ii) Fitch's
understanding that SK is unlikely to inject capital into Alliance prior to any
sale in order to support the bank's viability; and (iii) the agency's
understanding that regulatory forbearance with respect to the bank's
capitalisation is unlikely to be extended beyond the near term, meaning that a
restructuring of the bank is likely if a buyer is not found in a reasonably
short time. Adoption of the recapitalisation plan may be marginally positive for
Alliance in that it could signal the readiness of the authorities to extend
regulatory forbearance beyond the near term. However, in Fitch's view, the risk
of a restructuring remains high, as SK has yet to report on any significant
progress with the sale of the bank or announced any plans for the bank's
Alliance's 'cc' VR reflects the bank's weak stand-alone financial strength,
including (i) negative Fitch core capital (FCC); (ii) the high level of impaired
non-earning assets and significant restructured loans, the latter potentially
resulting in further pressure on capital; (iii) weak pre-impairment
profitability; and (iv) increasing refinancing risk. The H113 IFRS accounts did
not suggest any significant improvements in the bank's standalone profile, with
FCC remaining negative at end-H113, loans overdue by 90 days or more comprising
49% of the portfolio (the same level as at end-2012) and liquid assets of
USD267m (including USD98m of cash and USD169m of repoable sovereign and SK
bonds) accounting for a moderate 7% of the balance sheet. Pre-impairment profit
turned moderately positive in H113 after a loss in 2012, but was more than
offset by negative AFS securities revaluations, booked directly to equity.
Alliance's IDRs could ultimately be downgraded to 'RD' and the VR to 'f' if SK
fails to find a buyer for Alliance and announces that it will seek to resolve
the bank through a restructuring of its liabilities. The IDRs could also be
downgraded if the bank is sold to a weak new shareholder without measures being
taken to strengthen the bank's capitalisation by either SK or the new owner.
Conversely, the ratings could stabilise at their current levels, or be
moderately upgraded, if the bank's capitalisation is strengthened as a result of
Alliance Bank JSC's ratings are:
Long-Term foreign currency IDR: 'CCC'
Short-Term foreign currency IDR: 'C'
Long-Term local currency IDR: 'CCC'
Viability Rating: 'cc'
Support Rating: 5
Support Rating Floor: 'CCC'
Senior debt rating: 'CCC'; Recovery Rating 'RR4'
Subordinated debt rating: 'C'; Recovery Rating 'RR6'
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Fitch Ratings CIS Ltd
26 Valovaya Street
+7 495 956 7065
+7 495 956 6657
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