18 September 2014
RAM Ratings has reaffirmed the AA2/Stable rating of Development Bank of Kazakhstan Joint-Stock Company's (DBK or the Bank) Sukuk Murabahah Programme of up to RM1.5 billion (2012/2032). The rating reflects the credit strength of the Government of Kazakhstan (GOK, rated AA2(pi)/Stable/P1(pi)), given our opinion of a very high likelihood of support in times of need.
Ultimately owned by the GOK, DBK plays a strategic role in facilitating the former's goal of diversifying Kazakhstan's economy away from the oil and gas sector. Reflecting DBK's strategic importance, the GOK has demonstrated a strong track record of support for the Bank. Apart from ongoing funding support, the GOK also infused capital into the Bank thrice between 2009 and 2013.
As a development financial institution, DBK's loan book inherently carries higher credit risk as the Bank finances large-scale, long-term infrastructure and industrial projects that include green-field developments. This results in very significant levels of borrower-concentration risk and problem loans. Nonetheless, its gross impaired-loan ratio had eased to 24% as at end-March 2014 (end-December 2012: 47%), albeit still deemed high, after the disposal of a large chunk of impaired loans in 2013.
With the removal of the prohibition on using its own capital to fund its lending activities in April this year, DBK plans to finance more projects and expects its loan book to expand rapidly. The anticipated rapid expansion, coupled with the 19% devaluation of the Kazakh tenge in February this year that may affect the debt-servicing aptitude of some of its borrowers, means that DBK's asset quality will remain very weak. However, the Bank's high credit risk exposure is moderated by its sound capitalisation. As at end-March 2014, the Bank's tier-1 capital ratio stood at 19% while its total assets came up to only 4.6 times of its total equity.
To match the long maturities of its lending portfolio, DBK relies heavily on long-term wholesale borrowings. Although this subjects the Bank to refinancing risk, the maturity profile of its wholesale borrowings is well spread out. This, coupled with the Bank's liquid balance sheet, supports its comfortable liquidity position. Although DBK's assets are mainly denominated in USD, its foreign-currency mismatch is manageable as the Bank also predominantly borrows in the same currency. As such, the tenge's devaluation is not expected to affect the Bank's ability to service its debt obligations.
Lim Yu Cheng
(603) 7628 1188
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