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Fitch Affirms Home Credit (Kazakhstan) at 'B+'.

London: Fitch Ratings has affirmed Kazakhstan-based SB JSC Home Credit and Finance Bank's (HCK) Long-Term Foreign- and Local-Currency IDRs at 'B+'; the Outlooks are Stable. A full list of rating actions is at the end of this rating action commentary.



The affirmation reflects limited changes since the last review, as HCK continued to post good asset quality and robust profitability. However, the bank's small size (less than 1% of banking system assets in Kazakhstan), rapid growth in the potentially risky consumer segment, and its still concentrated and pricy deposit base constrain the ratings.

HCK's NPL origination ratio (defined as the increase in loans overdue above 90 days, plus gross write-offs, divided by average performing loans) have stayed at a decent 6%-7% in 2016-1H17, down from 14%-15% in 2014-2015, due to more prudent underwriting standards. NPLs 90+ days overdue (5% of gross loans at end-2Q17) were fully covered by reserves. Additionally, the bank's asset quality benefits from the absence of foreign currency lending.

Pre-impairment profitability is robust at about 20% of average gross loans in 6M17, which is far above the bank's NPL origination of about 5% after recoveries. As a result, the bottom line is also very strong (around 55% ROAE in 2016-6M17).

HCK's capitalisation is solid, despite sizeable dividends (around 75% of net income) paid out to the parent every year since 2013. HCK's regulatory total capital ratio was a healthy 15% at end-3Q17, but declined from 19% at end-2016 due to higher statutory risk weights for retail cash loans applied in Kazakhstan since January 2017. The bank's loss absorption capacity is strong: at end-3Q17, the bank could additionally reserve 9% of gross loans before breaching the extra 2% conservation buffer.

HCK is 70% funded by deposits. These are mostly price-sensitive, but proved to be sticky, as the bank's wide margins allow it to offer attractive interest rates. By end-2016, HCK became entirely self-funded, having replaced the parent funding with retail customer accounts, and moderately lowered concentration of its deposit base. HCK's liquid assets (25% of total customer accounts) were sufficient to cover 12 months' market debt repayments. The liquidity risks are additionally mitigated by large average monthly proceeds from loan repayments, equal to about 12% of customer accounts.


HCK's Support Rating of '4' reflects the limited probability of support that the bank may receive from its 100% parent, HCFB. In Fitch's view, HCFB's propensity to support HCK is high given the full ownership, the subsidiary's favourable performance to date, common branding and potential reputational damage for the broader Home Credit group in case of HCK's default. However, HCFB's ability to provide support to HCK is constrained by its own financial strength, as expressed by its 'BB-' IDR.


HCK's senior unsecured debt ratings are aligned with the bank's Long-Term IDRs and National Rating, reflecting Fitch's view of average recovery prospects, in case of default.


An upgrade of HCK's IDRs would require either an upgrade of the parent, reflecting an improved ability to provide support to HCK, or an improvement of the standalone profile, namely strengthening of the franchise, and better diversification of deposit base with lower funding costs, while maintaining reasonable asset quality and good performance.

HCK's Long-Term IDR would only be downgraded if both its standalone financial profile deteriorated significantly and HCFB failed to provide timely support.

The rating actions are as follows:


Long-Term Foreign- and Local-Currency IDRs: affirmed at 'B+'; Outlooks Stable

Short-Term Foreign-Currency IDR: affirmed at 'B'

National Long-Term Rating: affirmed at 'BBB (kaz)'; Outlook Stable

Viability Rating: affirmed at 'b+'

Support Rating: affirmed at '4'

Senior unsecured debt Long-term rating: affirmed at 'B+'; Recovery Rating 'RR4'

Senior unsecured debt National Long-term rating: affirmed at 'BBB (kaz)'
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Publication:Daily the Pak Banker (Lahore, Pakistan)
Geographic Code:9KAZA
Date:Jan 26, 2018
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