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AKIPRESS.COM - Moody's Investors Service said it concluded March 24 its review of Kazkommertsbank's ratings and confirmed its B3 long-term deposit and the Caa2 senior unsecured debt ratings, to which it has assigned a positive outlook.
The rating agency also affirmed Halyk Savings Bank of Kazakhstan's (Halyk) Ba2 deposit and Ba3 debt ratings and changed the outlook on these ratings to developing from negative.
A full list of affected ratings can be found at the end of this press release.
The confirmation of Kazkommertsbank's B3 deposit and Caa2 senior unsecured debt ratings with a positive outlook reflects Kazakhstan authorities' decision to provide the bank with the financial aid to address its solvency problems related to a high stock of problem assets.
Earlier this year, the authorities agreed to allocate KZT2.4 trillion ($7.6 billion) to buy problem assets from Kazkommertsbank. This government aid will help to address the bank's severe solvency problems that emanate from its problematic KZT2.4 trillion exposure to the distressed asset holding company BTA, which is largely unprovisioned and accounted for more than 50% of gross loans as of 30 September 2016.
When finalised, the financial package is expected to materially enhance Kazkommertsbank's solvency. However, since the exact amount of the support package and the ultimate impact on Kazkommertsbank's standalone credit profile are difficult to assess at this time, Moody's has confirmed all long-term ratings that were earlier placed on review with direction uncertain and assigned a positive outlook to these ratings
The affirmation of Halyk's Ba2 long-term deposit and Ba3 senior unsecured debt ratings with a developing outlook follows Halyk's announcement that it has entered into a non-binding agreement to take over Kazkommertsbank, but also the lack of clarity currently surrounding the acquisition plans.
The recently announced agreement that Halyk will consider absorbing Kazkommertsbank following its cleanup with government aid, signals the increased readiness by the authorities to support the country's largest lenders in case of need, and demonstrates the government's strong commitment to allocate funds to restore the system's creditworthiness while consolidating the banking system. Kazkommertsbank's consolidation into Halyk would enable the latter to secure a dominant position in the market with about 40% share of customer deposits, almost doubling its current market share. This potentially dominant market share could prompt Moody's to reassess the probability of government support for the bank's deposits, which would likely result in an upgrade of its long-term deposit ratings.
On the other hand, while Kazkommertsbank's takeover would increase Halyk's systemic importance, the consolidation of a potentially weaker Kazkommertsbank into Halyk could weaken Halyk's standalone credit profile, despite the mitigating factor of the government aid. A deterioration in Halyk's standalone credit profile following absorption of Kazkommertsbank, or the possibility of a lowering of the sovereign ratings, as reflected in the current negative outlook assigned to the Baa3 sovereign ratings of Kazakhstan, could lead to lower Halyk's long-term ratings.