Fitch downgrades Eximbank Kazakhstan's rating

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Fitch Ratings has downgraded Eximbank Kazakhstan's (Exim) Long-Term Issuer Default Ratings (IDRs) to 'CCC' from 'B-' and removed them from Rating Watch Negative (RWN).

According to Fitch, the downgrade primarily reflects the limited improvement in Exim's tight liquidity position, and continued pressure on the bank's capitalization from weak asset quality and core earnings.

Reported non-performing loans (NPLs) were a low 1 percent of gross loans at end-8M17, but restructured loan ratio remained high at about 59 percent of gross loans (end-2016: 3 percent and 57 percent). The weak underlying performance of Exim's loan book is highlighted by a high, and increasing, accrued interest-to-gross loans ratio of 39.5 percent at end-1H17 (end-2016: 36 percent) compared with the 9.4 percent average in the banking system.

Most restructured loans are related either to energy infrastructure projects developed by the bank's shareholders or to legacy construction projects.

Given the multiple delays in completion of these projects, loan recovery prospects are very uncertain, Fitch said.

Reported profitability weakened further, with return on average assets (ROAA) and on equity (ROAE) for 1H17 of 0.1 percent and 0.6 percent, respectively, down from 0.3 percent and 1.4 percent in 2016.

Fitch calculates that, net of accrued interest, the bank has been making pre-impairment losses for several years. Reported capital ratios are rather high, with regulatory core and total standing at 16.3 percent and 18.4 percent, respectively, at end-8M17, but these should be viewed together with the high-risk and under-provisioned loan book.

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