S&P Global Ratings, an international credit ratings agency, has revised its outlook on Kazakhstan-based Kaspi Bank JSC to stable from negative, the ratings agency said in a message.
The agency also affirmed the ‘BB-‘ long-term and ‘B’ short-term issuer credit ratings on the bank.
In addition, S&P Global Ratings raised the Kazakhstan national scale rating on Kaspi Bank to ‘kzA’ from ‘kzA-‘.
“The outlook revision reflects our expectation that the bank’s demonstrated strong earnings power will help it to withstand the challenging operating environment in Kazakhstan,” the message said. “Therefore, we expect the bank’s internal capital generation will support the relatively fast growth, with ample room to cover any potential increase in credit risks in unsecured consumer lending.”
Kaspi Bank has demonstrated visibly resilient operating performance over the past five years–its return on average equity reached 28.7 percent during this period amid a hostile operating environment, according to the message.
Indeed, Kaspi Bank JSC is one of the few banks in the system that has not required any extraordinary government or shareholder support in the past five years, the message said.
“Owing to its business model, the bank also enjoys a relatively higher fee and commission income than peers, therefore leaving the bank less susceptible to the possible contraction of interest margins,” the ratings agency noted. “Over the next 18 months, we expect the bank will be able to adequately price any potential increase in credit costs in the unsecured consumer lending sector (which is its major focus of lending operations).”
“We expect that the level of Kaspi Bank’s problem loans will be about 8-9 percent in the next two years, which is significantly below the 25-30 percent that we estimate for the system as a whole,” the agency added. “That said, we believe that Kaspi Bank’s planned ambitious loan portfolio growth in its key retail lending segment at 15-20 percent annually in 2018-2020, which is materially higher than 3 percent that we anticipate for the Kazakh banking sector overall, may lead to an accumulation of credit risks going forward.”
“However, we consider that the seasoning of the bank’s loan portfolio, which is faster than that of peers (76 percent of total loans matured in less than one year on Jan. 1, 2018), and its better single-name diversification compared with local peers (the top 20 loans accounted for only 13.5 percent of total loans on the same date) somewhat compensate for the above factors,” the message said.
“An upgrade of the ratings on Kaspi Bank appears remote in the next 12 months,” the ratings agency said. “However, it could happen if the bank’s risk appetite materially decreased–in particular, if its growth rate stabilized closer to the sector average while its underwriting performance remained strong.”
