1. Research Update:
Kazakhstan-Based Bank
Astana-finance JSC Assigned
'B-/C/kzBB' Ratings; Outlook Positive
Primary Credit Analyst:
Annette Ess, CFA, Frankfurt (49) 69-33-999-157; annette.ess@standardandpoors.com
Secondary Contact:
Natalia Yalovskaya, London (44) 20 7176 3407; natalia.yalovskaya@standardandpoors.com
Table Of Contents
Overview
Rating Action
Rationale
Outlook
Ratings Score Snapshot
Related Criteria And Research
Ratings List
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2. Research Update:
Kazakhstan-Based Bank Astana-finance JSC
Assigned 'B-/C/kzBB' Ratings; Outlook Positive
Overview
• In our opinion, Kazakhstan-based Bank Astana-finance JSC has a weak
business position, strong capital and earnings, a moderate risk position,
below average funding, and adequate liquidity.
• We are assigning our 'B-' long-term and 'C' short-term counterparty
credit ratings and our 'kzBB' national scale rating to Bank
Astana-finance.
• The positive outlook reflects our expectation that over the next 12
months the bank will diversify its funding profile by reducing its
reliance on funding support from its shareholder Astana Finance Holding,
reducing single-name funding concentrations among corporate depositors
and increasing the share of retail depositors, thus achieving a funding
profile broadly in line with other small and midsize Kazakh banks.
Rating Action
On July 30, 2014, Standard & Poor's Ratings Services assigned its 'B-'
long-term and 'C' short-term counterparty credit ratings to Bank
Astana-finance JSC. The outlook is positive.
At the same time, we assigned our 'kzBB' Kazakhstan national scale rating to
the bank.
Rationale
The ratings reflect the structurally high operating risks for a bank operating
primarily in Kazakhstan, factored into our 'bb-' anchor for local banks, as
well as our view of Bank Astana-finance's "weak" business position, "strong"
capital and earnings, "moderate" risk position, "below average" funding, and
"adequate" liquidity, as our criteria define these terms.
The ratings also take into account the committed shareholders who are willing
to inject capital to support the bank's growth as well as lower single name
loan concentrations than peers. Offsetting these strengths are a modest
competitive position in the Kazakh banking sector, an untested growth
strategy, low risk-adjusted returns, and very high funding concentrations.
Our assessment of Bank Astana-finance's business position as weak reflects its
small asset size and limited franchise in the Kazakh banking sector as well as
a new management team with an unproven track record of working together. The
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3. bank ranked No. 23 among 38 Kazakh banks, with a market share of 0.6% by
assets, which totaled Kazakhstani tenge (KZT)98 billion ($0.5 billion) as of
June 1, 2014.
The new shareholders of the bank--two Kazakh businessmen Kenes Rakishev and
Olzhas Tokhtarov--have ambitious plans for the bank's development over the
next five years, led by the recently installed management team. The bank's
growth strategy envisions organic loan growth of 3.1x over 2014-2016. In our
opinion, the success of this growth strategy will depend on the bank's ability
to attract high quality borrowers, diversify its narrow franchise, and obtain
sufficient resources, both capital and deposits, to match its ambitious asset
growth targets. The ability and willingness of the bank's majority shareholder
to continue injecting fresh capital will therefore be vital. In addition, the
bank needs to demonstrate that it can achieve its strategic goals and build a
viable long-term business model with stable customer relationships.
We assess Bank Astana-finance's capital and earnings as strong, reflecting our
view that rapid loan growth will be sufficiently supported by Tier 1 capital
injections to maintain capital at current levels. We anticipate that
significant investments in the distribution network and risk management
framework required for the bank's development will constrain the bank's
profits in the next two years.
We forecast that the bank's risk-adjusted capital (RAC) ratio will remain at
about 11% in the next 12-18 months (it was 11.3% at year-end 2013). The bank
plans to meet the regulator's new capital requirement of a minimum of KZT30
billion at year-end 2015 through shareholder capital increases. If these
expectations of capital increases do not materialize, we might reassess the
bank's capital strength.
Our assessment of Bank Astana-finance's risk position as moderate reflects the
risks associated with managing rapid loan growth in the highly competitive
Kazakh banking sector and a weaker loss track record than other small Kazakh
banks. The bank's new management team has yet to prove its ability to manage
the bank's rapid growth over a full business cycle. We view Bank
Astana-finance's planned rapid loan growth as a key risk factor. The new
management team is in the process of developing new credit procedures and
standards adequate for the bank's growth strategy.
Individual loan concentrations as a percentage of capital compare favorably
with those of other small Kazakh banks. The top 20 loans made up 50% of total
loans or 1.6x total adjusted capital at year-end 2013.
The bank's loss track record compares unfavorably with other small Kazakh
banks'. The bank has inherited a large stock of nonperforming loans (NPLs)
from Astana Finance JSC. According to the regulatory data, NPLs were 13.2%
(KZT7.2 billion) on June 1, 2014. In addition, as of mid-2014, about KZT4
billion of loans were restructured. In our view, provisions (6% of total loans
at mid-2014) are insufficient to cover NPLs and restructured loans.
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Research Update: Kazakhstan-Based Bank Astana-finance JSC Assigned 'B-/C/kzBB' Ratings; Outlook Positive

4. We consider Bank Astana-finance's funding to be below average, reflecting a
concentrated funding profile with current very high reliance on funding from
Astana Finance Holding, high single-name concentrations of corporate
depositors, and limited retail deposits.
The bank's license on retail deposits and accounts was reinstated on April 1,
2014, following revocation. As of mid-2014, retail depositors accounted for
about 5% of total customer deposits and the bank expects to increase their
share to 20%, which would be in line with peers. The top 20 depositors
accounted for 86% of total deposits at mid-2014, which compares unfavorably
with peers. We expect the granularity of the deposit base to improve and
reliance on shareholder funding to decrease.
The bank's share of liquid assets was adequate, at 25% of total assets as of
mid-2014. However, the bank plans to decrease them to about 15% by year-end
2015 in line with its strategy.
The counterparty credit rating on Bank Astana-finance is at the same level as
the SACP because we give no uplift for extraordinary owner or government
support. We consider Bank Astana-finance to have "low" systemic importance in
Kazakhstan's banking industry, reflecting its competitive position.
Outlook
The positive outlook reflects our expectation that, over the next 12 months,
the bank will diversify its funding profile by reducing its reliance on
funding support from its shareholder Astana Finance Holding, reducing
single-name funding concentrations among corporate depositors, and increasing
the share of retail depositors, thus achieving a funding profile broadly in
line with other rated small and midsize Kazakh banks.
If the bank achieves the above-mentioned metrics, we would revise our
assessment of its funding to average from below average and upgrade the bank,
everything else being equal, in the next 12 months.
We expect the bank to maintain capital and liquidity at current levels and
further diversify its lending and funding profiles. We also expect that the
shareholders will continue their track record of making capital injections to
support the bank's growth strategy.
We could take a negative rating action if the bank's loan growth significantly
exceeds its forecast or the shareholders' planned capital injection is
delayed, thus leading to weakened loss-absorption capacity, with our forecast
RAC ratio declining below 10%. A significant increase in NPLs, from already
above-peer levels, and the need to create significant additional provisions
would also negatively affect the bank's profitability and capitalization.
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Research Update: Kazakhstan-Based Bank Astana-finance JSC Assigned 'B-/C/kzBB' Ratings; Outlook Positive

5. Ratings Score Snapshot
Issuer Credit Rating B-/Positive/C
SACP b-
Anchor bb-
Business Position Weak (-2)
Capital and Earnings Strong (+1)
Risk Position Moderate (-1)
Funding and Liquidity Below Average
and Adequate (-1)
Support 0
GRE Support 0
Group Support 0
Sovereign Support 0
Additional Factors 0
Related Criteria And Research
Related Criteria
• Banks: Rating Methodology And Assumptions, Nov. 9, 2011
• Banking Industry Country Risk Assessment Methodology And Assumptions,
Nov. 9, 2011
• Bank Capital Methodology And Assumptions, Dec. 6, 2010
Related Research
• Banking Industry Country Risk Assessment: Kazakhstan, July 24, 2014
Ratings List
New Rating
Bank Astana-finance JSC
Counterparty Credit Rating B-/Positive/C
Counterparty Credit Rating
Kazakhstan National Scale kzBB/--/--
Additional Contact:
Financial Institutions Ratings Europe; FIG_Europe@standardandpoors.com
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column. Alternatively, call one of the following Standard & Poor's numbers:
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Research Update: Kazakhstan-Based Bank Astana-finance JSC Assigned 'B-/C/kzBB' Ratings; Outlook Positive

6. Client Support Europe (44) 20-7176-7176; London Press Office (44)
20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm
(46) 8-440-5914; or Moscow 7 (495) 783-4009.
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Research Update: Kazakhstan-Based Bank Astana-finance JSC Assigned 'B-/C/kzBB' Ratings; Outlook Positive

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