Development Bank of Kazakhstan to reduce reliance on government funding - S&P

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S&P Global Ratings affirmed its long- and short-term foreign- and local-currency issuer credit ratings regarding the Development Bank of Kazakhstan (DBK) at 'BB+/B', the international rating agency announced in its press release.

S&P also affirmed the Kazakhstan national scale ratings at 'kzAA-' and the 'BB+' issue rating on the bank's senior unsecured bonds. The outlook is stable.

“The affirmation reflects our view that there is an almost certain likelihood that the government of Kazakhstan would provide timely and extraordinary support to DBK in a financial stress scenario. DBK is the largest entity within the government-owned Baiterek group and we expect it to remain core to the overall Baiterek group strategy, which is broadly aimed at supporting Kazakhstan's economic development and diversification,” the press release read.

DBK accounted for 60 percent of the Baiterek group's consolidated assets as of the end of 2017.

S&P expects DBK's capitalization to remain at adequate levels although to somewhat reduce in the next 18 months, taking into account the impact of IFRS9 provisions. The bank's risk position is comparable to the Kazakh banking system average, reflecting high individual and by sector lending concentrations but low reported nonperforming loans (NPLs) following the transfer of legacy NPLs to the Investment Fund of Kazakhstan a few years ago.

The bank's liquid assets adequately cover its short-term debt repayments but the bank is vulnerable to refinancing risk as concentrated wholesale funding dominates its funding profile. DBK aims to diversify its lending across a variety of market sources and to reduce its reliance on government funding.

The stable outlook on DBK mirrors company's outlook on the sovereign ratings on Kazakhstan. Any rating action on the sovereign would likely result in a similar action on DBK.