(The following statement was released by the rating agency)
MOSCOW/LONDON, December 22 (Fitch) Fitch Ratings has affirmed
Issuer Default Ratings (IDRs) of Cartu Bank (Cartu) at 'B+',
at 'B' and Halyk Bank Georgia (HBG) at 'BB-'. The Outlooks are
Stable. A full
list of rating actions is at the end of this rating action
KEY RATING DRIVERS - ALL BANKS' IDRs, VIABILITY RATINGS (VRs)
The IDRs of Cartu and Basis are driven by their intrinsic
strength, as reflected
by their Viability Ratings (VRs) of 'b+' and 'b', respectively.
The VRs reflect
both banks' solid capital buffers (stronger at Cartu), good
acceptable asset quality metrics. The VRs also consider the
balance-sheet concentrations, high loans dollarisation (on
average, 67% of the
total) and franchise limitations.
The Stable Outlooks on Cartu and Basis reflect Fitch's
expectation that the
banks' sizeable loss absorption buffers will provide resilience
moderate asset quality deterioration, as loans start seasoning
rapid growth and following depreciation of the lari. Severe
stresses from the
operating environment are unlikely, as reflected by the Stable
Outlook on the
HBG's IDRs are driven by potential support it may receive, in
case of need, from
its sole shareholder Halyk Bank of Kazakhstan (HBK, BB/Stable).
Outlook on HBG mirrors that on its parent. Fitch has not
assigned a VR to HBG
because of its high management and operational integration with
HBK, small size
and significant reliance on parent funding.
At end-1H16, non-performing loans (NPLs, overdue more than 90
legacy exposures originated in 2011, comprised a high 9% of
(unchanged from end-2015) although they were reasonably
86%-covered by reserves.
High FX lending, mostly to unhedged borrowers, and large
borrower and sector
concentrations heighten the bank's risk profile. At end-1H16,
top 25 exposures
made up to 60% of gross loans; the largest construction and real
accounted for 23% of loans. The bank's annual credit growth has
been rapid at
around 47% on average in 2013-2015 but moderated sharply to 9%
in 1H16. NPL
origination (calculated as net change in NPLs plus write-offs
divided by average
performing loans) was a low 1.5% in 1H16, annualised (2015:
Profitability metrics have been volatile through the cycle,
affected by one-off
events in 2015, but remain reasonable, with ROAE of 16% in 1H16
Cartu's capitalisation remains strong - Fitch Core Capital Ratio
(FCC) of 20% at
end-1H16, despite the recent negative trend due to the lari
loan book growth. We estimate that the bank could increase its
reserves up to 16% of end-1H16 loans without breaching the
regulatory Tier 1
capital ratio. The subordinated debt contributed by the
shareholder, equal to
10% of risk-weighted assets, provides additional loss-absorption
Customer funding (69% of total non-equity liabilities) is highly
but generally stable: the top 20 largest deposits comprised 73%
of the total.
Related-party deposits accounted for 27% of total end-1H16
liquidity buffer was moderate, at around 28% of end-3Q16
NPLs remained low at 2% of loans at end-1H16 (unchanged from
covered by reserves. Restructured loans added a further 3% of
gross loans, but
these were fully performing. High FX-lending, large borrower and
concentrations (top 25 exposures made up 45% of gross loans; 22%
loans were from the largest construction and real estate
segment) are sources of
heightened credit risk. The bank's lending volumes stagnated in
rapid growth of 68% on average in 2013-2015. NPL origination was
low at 0.3% in
1H16 (2015: 2%).
Profitability metrics are adequate with annualised 14% ROAE in
slightly weaker than at other Fitch-rated banks mainly due to
rates Basis offers on its loans to capture market share. The
capitalisation remains strong with a high 22% FCC ratio at
credit growth has subsided. Regulatory capitalisation was also
allowing the bank to increase its impairment reserves to 22% of
breaching the regulatory minimum levels.
Customer funding (80% of end-1H16 liabilities) is concentrated.
The top 20
depositors accounted for 62% of the total. Related-party funding
was 13% of
total customer accounts (end-2015: 29%). The liquidity buffer is
would sustain an outflow of around 50% of customer accounts at
SUPPORT RATINGS, SUPPORT RATING FLOORS
Cartu's and Basis's Support Rating of '5' and Support Rating
Floor of 'No Floor'
reflect the two banks' limited systemic importance, and
view that state support cannot be relied upon. Potential support
private shareholders is also not factored into the ratings, as
it cannot be
HBG's Support Rating of '3' reflects moderate probability of
support from HBK.
The one-notch differential between HBK's and HBG's IDRs reflects
cross-border nature of the parent-subsidiary relationship, and
the so far
limited track record and contribution of the Georgian subsidiary
Basis's ratings could benefit from an extended track record of
growth, while maintaining reasonable asset quality metrics and
franchise. The upside potential for Cartu's ratings is limited,
diversification of the bank's profile and improvements in
would be credit positive. Downward pressure on both banks'
ratings may result
from further rapid growth or a marked deterioration in asset
leading to a significant capital erosion.
HBG's support-driven Long-Term IDR is sensitive to changes in
of support from its parent bank.
The rating actions are as follows:
Long-Term Foreign Currency IDR: affirmed at 'B+'; Outlook Stable
Short-Term Foreign Currency IDR: affirmed at 'B'
Viability Rating: affirmed at 'b+'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'
Long-Term Foreign Currency IDR affirmed at 'B'; Outlook Stable
Short-Term Foreign Currency IDR affirmed at 'B'
Viability Rating: affirmed at 'b'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No floor'
Halyk Bank Georgia
Long-Term Foreign Currency IDR: affirmed at 'BB-', Outlook
Short-Term Foreign Currency IDR: affirmed at 'B'
Support Rating: affirmed at '3'
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