Moody's Investors Service has concluded its review for possible downgrade of six Kazakh financial institutions with the downgrade of the ratings of five financial institutions.
Four of these institutions are financial Government-Related Issuers (GRIs) — Development Bank of Kazakhstan, Kazakhstan Mortgage Company, KazAgroFinance and Agrarian Credit Corporation. The fifth institution affected by the downgrade is House Construction Savings Bank of Kazakhstan — a fully government-owned bank. The ratings of the sixth institution under review, DBK-Leasing, a fully owned subsidiary of Development Bank of Kazakhstan, were confirmed.
The outlook on Kazakhstan Mortgage Company's long-term issuer rating is negative, reflecting the ongoing pressure on the company's stand-alone financial profile and, in Moody's view, its diminishing policy role. The outlook for the issuer and deposit ratings of all other aforementioned financial institutions is stable, in line with the stable outlook on Kazakhstan's sovereign rating.
The downgrades were triggered by a lowering of Moody's support assumptions incorporated in the ratings of the five Kazakh institutions affected and conclude the review process initiated on 8 April 2010. Given the government's propensity to protect its balance sheet from large contingent liabilities, the rating agency has reassessed the level of the government support incorporated into the ratings of the five Kazakh institutions.
The agency notes that although the affected institutions continue to serve important policy roles within the Kazakh financial sphere, the strategic importance of these entities for the government may not be as vital as other GRIs, particularly those operating in the oil and gas industry, which is the main engine of economic growth for the country. As a result, Moody's has lowered the level of government support reflected in the ratings of these financial institutions, causing a downward adjustment in their issuer and debt ratings.
The issuer ratings of DBK-Leasing were confirmed, given that the downgrade of its parent's rating by one notch has no impact on Moody's assessment of the possible parental support to the issuer.
Moody's notes that although the review led to a reduction in the level of credit enhancement stemming from government support, the ratings of the five Kazakh institutions continue to benefit from significant uplift from their stand-alone or Baseline Credit Assessments (BCAs). The new ratings still reflect between one- to four- notches of uplift from their BCAs
