Fitch Affirms Kazakhstan’s ATF Bank at ‘BB-’; Assigns ATF Bank’s USD450 million Eurbond Final ‘BB-’ rating

The agency has also assigned ATF Capital B.V.'s USD450 million 9.25% eurobond issue due 2014 a final rating of Long-term 'BB-' (BB minus). The notes will be irrevocably and unconditionally guaranteed by ATF. Further details on the structure of the issue can be found in Fitch's announcement on 9 February 2007 (see www.fitchresearch.com).

ATF's Issuer Default, Short-term and Support ratings reflect Fitch's view of the moderate likelihood of state support being available to the bank in case of need. This view takes account of ATF’s significant and increased market shares, and also the ability of the Kazakhstani authorities to provide support, as reflected in the sovereign’s foreign currency IDR of ‘BBB’/Positive Outlook.

The Individual rating reflects the risk inherent in ATF’s rapid asset growth, high construction sector and borrower concentrations, increased pressure on capital and significant reliance on international funding. However, the ratings also take into account the bank’s reasonable, to date, loan impairment levels and liquidity profile as well as modest market risk appetite.

Downward pressure on the Individual rating could come from significant pressure on capital adequacy levels driven by further rapid growth in risk-weighted assets or any deterioration in asset quality. Positive factors for the Individual rating would be a moderation of loan growth rates, a substantial improvement in bottom-line performance and maintenance of adequate capitalization ratios.

During Q406 ATF almost doubled its asset base to become the third-largest bank in Kazakhstan at end-2006. This extraordinary growth was funded mainly by substantial international borrowings and a surge in large customers’ deposits. Loans also grew by a very rapid 31% in Q406, although the majority of the attracted funding was placed in liquid instruments at end-2006. The latter fact, combined with the placement in Q406 of preferred stock allowed the bank to still report a total regulatory capital ratio of 14.5% at end-2006 (regulatory minimum: 12%). The ratio of tier 1 capital (including the preferred stock, but excluding large subordinated debt outstanding) to regulatory risk-weighted assets was 9.9% at year-end.

ATF plans to continue growing its risk-weighted assets in H107, predominantly by reducing liquid assets and expanding the loan book. This is likely to put significant pressure on capital adequacy levels, requiring substantial fresh capital injections. “Management considers an IPO as a viable capital strategy for the bank in H107”, says Dmitri Angarov, Associate Director at Fitch's Financial Institutions Group in Moscow. “We are concerned, however, that should a public placement be delayed for any reason, or should asset quality deteriorate as a result of ongoing growth, the bank’s capital position could weaken, while its strengthening may depend on the bank’s continued ability to place other capital instruments.”

At end-2006 ATF held around 12% of Kazakhstan’s banking system assets. Large corporate and SME business have been the primary focus of the bank’s growth strategy. However, management expects that the planned expansion of its branch network will support growth in retail business. Bulat Utemuratov, a Senior Official at the President’s Administration Office, and his family beneficially own 51.9% of ATF’s ordinary share capital.