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The Global Financial Centres Index 26
The twenty-sixth edition of the Global Financial Centres Index (GFCI 26) was published on 19 September 2019
20 2019 | Viewed: 35 | Press Releases | Read full
Fitch Ratings: New Kazakhstan President Maintains Economic Policy Settings
Fitch Ratings-London-24 July 2019: Kazakhstan's President Kassym-Jomart Tokayev looks set to pursue the main economic policy priorities of his predecessor, Fitch Ratings says. These included structural reforms and, more recently, increasing social spending.

We expected policy continuity following Tokayev's landslide victory in June's presidential election. He had taken over as interim president following the resignation in March of the previous president, Nursultan Nazarbayev, after 30 years in office. Tokayev is a long-standing Nazarbayev ally and former prime minister. Nazarbayev will retain considerable influence as chairman of the Security Council and president of the Nur Otan party (he endorsed Tokayev as the party's presidential candidate).

Kazakhstan's parliament in July adopted the national budget for 2019-2021. The budget enacts the large programme of social expenditure announced by Nazarbayev in February 2019 that includes a 50% increase in the minimum wage, tax cuts for low-income earners, and investment in housing and transport infrastructure. It continues to target a close-to-balanced budget by 2021, and reductions to the non-oil deficit.

Government debt is low and favourable oil prices will help to contain the budgetary impact of higher government spending. Higher oil prices and output boosted fiscal receipts in 2018, helping to shrink the consolidated general government deficit to an estimated 0.6% of GDP from 6.4% in 2017, when support for the banking sector led to a surge in public expenditure.

We forecast the unconsolidated central government deficit to widen to 2.1% of GDP (from an estimated 1.4% in 2018). Tokayev may seek to consolidate his popularity with further increases in social and investment spending. Following the election, he has asked the prime minister to develop new social policy initiatives and measures to boost employment.

Tokayev has also announced debt relief 'for people who find themselves in very difficult living circumstances', telling Bloomberg on 26 June that the initiative would target 3 million Kazakhs, or 16% of the population. It will cost about KZT105 billion (USD274 million, or 0.17% of GDP). In the same interview, he said there should be no more government bailouts for privately owned Kazakh banks.

The debt-relief program will be financed from the recent targeted transfers (which are allocated to specific measures) from the National Fund of the Republic of Kazakhstan (NFRK) to the budget, amounting to KZT370 billion. The government in April 2019 increased the yearly guaranteed NFRK transfers for 2019-2021 to KZT2.7 trillion. Its medium-term fiscal target aims to cut transfers to KZT2 trillion by 2020, from KZT2.6 trillion in 2018.

The clean-up of Kazakhstan's banking sector has continued in 2019, with the state-owned Problem Loan Fund purchasing an additional KZT604 billion of distressed assets from Tsesnabank, using proceeds from bonds subscribed by the central bank. Given the levels of bad loans (mostly deep-seated legacy loans to corporates) at end-2018 revealed by IFRS 9 disclosures, we think some medium-sized banks could require fresh capital injections or other forms of external support (such as sales to the Problem Loan Fund) to absorb potential additional impairment losses.

We think off-government balance sheet transactions could be used again to fund further government bank support if it were needed; for example, following the central bank's Asset Quality Review, due by end-2019.

We expect the new president will continue existing efforts to improve the business climate and institutional policymaking framework, support agriculture and the digital economy, and speed up privatisation. However, economic diversification will be slow as non-oil growth is constrained by low productivity and labour supply growth, in our view.

Kazakhstan's 'BBB'/Stable sovereign rating balances strong public and external balance sheets against high commodity dependence, a weak banking sector, weak governance relative to ratings peers, and high inflation.

26 2019 | Viewed: 48 | Press Releases | Read full
Helen Clark appointed as new EITI Chair
New EITI Board also elected

Paris, 17 June 2019: The Extractive Industries Transparency Initiative (EITI) Members Meeting today confirmed the appointment of Rt Hon. Helen Clark as the Chair of the EITI. The EITI Board for 2019-2021 was also elected.
 
Members of the EITI 2019 - 2021 Board
 
Helen Clark is a widely respected global leader on sustainable development and international cooperation. She served three successive terms as Prime Minister of New Zealand between 1999 and 2008. While in government, she led policy debate on a wide range of economic, social, environmental and cultural issues, including sustainability and climate change. She then became the UNDP Administrator for two terms from 2009 to 2017, the first woman to lead the organisation. She was also the Chair of the United National Development Group, a committee consisting of the Heads of all UN funds, programmes and departments working on development issues.
 
Outgoing EITI Chair, Fredrik Reinfeldt commented: I am delighted to be succeeded by Helen Clark as EITI Chair. The governance of extractive resources is one of the most pressing issues of the 21st century. Helen's previous leadership roles in global development make her excellently qualified to open up new avenues for dialogue on the role of extractive resources in sustainable development. Over the last 12 years, the EITI has grown from an initiative to a global Standard for the good governance of the sector. I would like to pay tribute to the network of stakeholders and partners who have developed the Standard and leveraged it to pursue tangible reforms and better investment."  

Mark Robinson, Executive Director of the EITI, welcomed Helen Clark's appointment, saying that: "We are delighted at Helen's appointment and confident that her political and diplomatic skills will help shape the EITI, as it continues to play an important role as the benchmark for extractives governance and transparency. Helen will be the fourth Chair of the EITI and the second woman to take up the role."

Incoming Chair, Rt Hon. Helen Clark, expressed her appreciation of the work of previous leaders of the EITI and commented: "At EITI, I will be working with more than 50 countries globally to improve transparency, accountability, and governance, and to raise the bar for extractives governance. I am grateful for the role Fredrik and the outgoing Board have played in forging consensus on the revised 2019 EITI Standard, and I look forward to taking this important work forward."




19 2019 | Viewed: 39 | Press Releases | Read full
Fitch Ratings Publishes Kazakh Banks Datawatch 1Q19
Link to Fitch Ratings' Report(s): Kazakh Banks Datawatch 1Q19

Fitch Ratings-London-24 May 2019: Fitch Ratings has published its Kazakh Banks Datawatch for 1Q19, consisting of key data from banks' regulatory financial statements and disclosures sourced primarily from the National Bank of Kazakhstan (NBK) and Kazakhstan Stock Exchange. The 1Q19 report consists of data in pdf and xlsx formats, charts and Fitch commentary and covers 25 banks, comprising 99% of the system's assets.

By end-1Q19, Tsesnabank (Tsesna), the second-largest bank in the country with a 9% market share at end-3Q18, was fully resolved. The state support package included some liquidity support and a two-stage transfer of problem loans (equal to 55% of opening loans) to the state-owned Problem Asset Fund at net book value. The residual loan book had been deeply provisioned and additional loan impairment charges of about KZT600 billion (33% of opening loans) were mainly offset by a bail-in of state-owned senior unsecured creditors by means of significant tenor extensions and rate cuts.

Kazakh authorities seemingly view a bail-in of state-owned creditors as another form of state support, but we would view it as a distressed debt exchange and a restricted default according to our Criteria, as these deposits are reference obligations to our Issuer Default Ratings. We continue to believe that some state support may be available for banks with at least moderate market shares. However, the Tsesna case shows that when a bank is resolved the likelihood of senior creditors sharing the burden of losses with the state has increased, particularly if the amount of potential problem at the affected bank is substantial. For these reasons, we lowered the Support Rating Floors of four privately owned banks by one notch in March.

We continue to view weak asset quality as the primary reason for recent bank failures in Kazakhstan. The financial viability of the most part of the banking sector has improved, following the resolution of Kazkommertsbank in 2017 and significant efforts by the authorities to clean-up the sector since then. However, there remain a few more banks, making about 20% of sector assets, with large net amounts of deep-seated legacy problem assets, materially exceeding equity. These problem assets are not always reflected in regulatory asset-quality ratios and may require significant additional provisioning.

Banks' credit metrics remained largely stable in 1Q19, although there is large divergence between banks. Sector return on average equity remained stable in 1Q19 at 22% if adjusted for one-off losses at Tsesna. However, the most part of the sector net income is contributed by Halyk, Kaspi and foreign-owned banks, while other banks are less profitable. Sector average Tier 1 ratio is high at 17.3%, but should be viewed in the context of weak asset quality and likely provisioning needs at some banks. Problems at Tsesna did not result in significant customer funding outflows, as deposits (outside Tsesna) remained almost flat in 1Q19. Liquidity buffers are generally strong, particularly at larger banks.

The 1Q19 report is available at www.fitchratings.com or by clicking the link above.

Contact:

Dmitri Vasiliev
Director
+7 495 956 5576
Fitch Ratings CIS Limited
26 Valovaya Street
Moscow 115054







28 2019 | Viewed: 56 | Press Releases | Read full
Fitch Ratings: CIS Banking Risks Remain despite Authorities' Actions
Link to Fitch Ratings' Report(s): Key Materialized CIS Banking Risks

Fitch Ratings-Moscow-15 April 2019: Fitch Ratings says key risks have materalised in different CIS banking markets and, in some cases, remain sources of vulnerability. This, together with authorities' responses to the crystallisation of such risks including provision of support or, in some cases, imposition of losses on third-party creditors, is one of the themes in a presentation published by Fitch.

CIS banking systems have experienced various stresses over the last 12 years, with some significant common causes. Chief among these is mismanagement of foreign currency (FC) risks, such as FC lending to weakly hedged borrowers, an over-reliance on external FC debt and generally high dollarisation of liabilities, and sometimes maintenance of large short open currency positions. When in 2014-2015 many regional currencies depreciated sharply, banks in Ukraine, Kazakhstan and Azerbaijan experienced significant worsening of credit losses associated with these exposures, and some failed as a result. This risk is still present, with FC lending particularly high in Azerbaijan (40%), Ukraine (48%), Belarus (49%), Uzbekistan (55%), Georgia (56%) and Armenia (58%).

Another common source of problems has been poor corporate governance, coupled with weak supervision, which resulted in sizable amounts of state money being required to resolve failed banks in Russia and Kazakhstan, where clean-ups are still ongoing. In Russia we estimate total clean-up costs to date at about USD80 billion, and we believe the Central Bank of Russia (CBR) could spend about another USD10 billion in the next two-to-three years, as it finalises the clean-up. Positively, as a result of the clean-up the CBR has managed to effectively stop capital outflows via doubtful transactions.

In certain cases (eg BTA in Kazakhstan, Privatbank in Ukraine and International Bank of Azerbaijan) authorities have decided to share the burden of supporting the banks with foreign creditors, who as a result incurred significant losses. For example, we estimate that in BTA alone foreign creditors lost about USD13 billion. As a result our bank ratings in Kazakhstan and Azerbaijan factor in no or only limited state support, although in Ukraine we believe the propensity to support state-owned banks remains high.

Retail overheating is another major risk, which already materialised in Russia in 2014-2015 when credit losses on high-margin consumer loans reached 25%, compared with an annual rate of 5%-8% previously. Russian banks subsequently tightened their approval rates, but from 2017 began to lend more actively again, which may lead to further overheating in two to three years. The CBR has so far sought - with limited success - to suppress growth through higher risk-weights, but may soon implement more radical measures (specifically, payment-to-income and debt-to-income limits), which, we believe, could be more effective. Retail lending growth in Kazakhstan is also quite high, exceeding that of nominal incomes, which could be a source of growing risks, while the local regulator has not yet taken decisive steps to curtail it.

Overall, we see some tightening of supervision across CIS markets, which is a positive development. However, given the significant issues in some countries it may take some time to address them, while some risks, such as dollarisaiton of balance sheets, will be very difficult to reduce or mitigate.

17 2019 | Viewed: 44 | Press Releases | Read full
Fitch Affirms Bank Centercredit at 'B-'; Withdraws Ratings
Fitch Ratings-Moscow-03 April 2019: Fitch Ratings has affirmed Bank Centercredit's (BCC) Long-Term Issuer Default Ratings (IDRs) at 'B-' with a Stable Outlook and simultaneously withdrawn all of the bank's ratings for commercial reasons. Fitch will no longer provide rating and analytical coverage of BCC. A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS

BCC's IDRs and Support Rating are underpinned by the probability of support from the Kazakh authorities. Fitch recently re-assessed the state's propensity to support medium-sized Kazakh banks in light of the failure and resolution of the country's second-largest bank, Tsesnabank, and, as a consequence, revised BCC's Support Rating Floor (SRF) and downgraded the bank's support-driven IDRs (see "Fitch Revises 4 Kazakh Privately-Owned Banks' Support Rating Floors; Downgrades BCC and ATF" dated 12 March 2019).

Fich has affirmed BCC's Viability Rating (VR) at 'ccc', reflecting limited changes to the bank's credit profile since its last review in December 2018 (see "Fitch Affirms 6 Kazakh Financial Institutions; Downgrades ATF's & Centercredit's VRs" dated 10 December 2018). BCC's VR captures a large stock of legacy impaired loans and other high-risk assets, weak pre-impairment profitability and an insufficient core capital buffer. The bank has thus far made limited progress on resolving these risks. While its gross Stage 3 loans/gross loans ratio was down to 27% at end-2018 from 31% at end-1H18, unreserved net impaired loans stood at a high 1.7x of regulatory equity at end-2018 (end-1H18: 1.9x). The bank's funding profile remains stable and its dependence on state-related deposits has decreased since end-1H18.

RATING SENSITIVITIES

Not applicable.

The following ratings have been affirmed and withdrawn:

Long-Term Foreign- and Local-Currency IDRs: 'B-'; Outlooks Stable
Short-Term Foreign-Currency IDR: 'B'
National Long-Term Rating: 'BB-(kaz)'; Outlook Stable
Viability Rating: 'ccc'
Support Rating: '5'
Support Rating Floor: 'B-'
Senior unsecured debt: 'B-'/'BB-(kaz)'/'RR4'
Dated subordinated debt: 'CC'/'RR6'/'CCC(kaz)'
Perpetual debt: 'C'/'RR6'

4 2019 | Viewed: 46 | Press Releases | Read full
The EITI Board in Kyiv on 27-28 February determined the EITI status of Ethiopia, Ghana, Guinea, Malawi, Mauritania, Nigeria, Norway and Trinidad and Tobago.
EITI chair Fredrik Reinfeldt commented, "over half of all EITI countries have now undergone Validation against the EITI Standard, and the overall travel of direction is positive. Governments, companies and civil society across regions are demonstrating strong commitment to bringing transparency and accountability to the management of their natural resources and using EITI data to instigate reforms. Validation has shown that many EITI countries are going beyond the EITI Standard, with innovative disclosures related to extractives contracts, licensing and sales of the states share of oil, gas and minerals."

Ethiopia, Guinea, Malawi, Mauritania and Trinidad and Tobago achieved meaningful progress against the EITI Standard. Nigeria and Norway have achieved the highest level of transparency against the EITI Standard.


Ethiopia
The Board decided that Ethiopia has made meaningful progress in implementing the EITI Standard. The Board welcomed Ethiopias effort to report on issues of national importance such as artisanal and small-scale mining and socio-environmental issues. The Board commended ongoing reforms to shift the mandate of government agencies from control and monitoring to supporting and enabling civil society to contribute in public debate. Going forward, the EITI can play a key role in improving the relationship between companies and affected local communities.
 
Ghana
Ghana was found to have made meaningful progress and fully addressed six out of eight corrective actions. Ghanas implementation of EITI recommendations contributed to reforms that have increased the governments revenues from the sector, a priority for the government that wants to decrease its reliance on foreign aid. The country was lauded for publishing all of its mining, oil and gas contracts and making these accessible through online portals.
Guinea
Guinea, which has a rapidly developing bauxite sector and is rich in iron ore reserves, has achieved meaningful progress against the EITI Standard. The Board outlined eight corrective actions including disclosing more information on infrastructure agreements, direct subnational payments and quasi-fiscal expenditures.

Malawi
Malawi has achieved meaningful progress against the EITI Standard. The country has significant deposits of bauxite, coal, limestone, phosphate and uranium. The extractive sector is still in development, with few large-scale mining operations. To ensure terms of operations are accessible to the public, all contracts have been published. EITI implementation has provided citizens with the first comprehensive and public assessment of revenues and management of the oil, gas and mining sectors.  

Mauritania
Several large oil and gas projects are being developed in Mauritania, a leading producer of iron ore. The country has achieved meaningful progress against the EITI Standard, having made improvements in the oversight of EITI implementation by the government, industry and civil society. The Board recognised Mauritanias efforts in using EITI reporting as a diagnostic tool to drive reforms in the management of extractives licences and state participation in the mining sector.

Nigeria
Nigeria has used the EITI to reform its extractive industries and build accountability, achieving the highest level against the EITI Standard. Over 15 years of implementing the EITI, the Nigeria EITI (NEITI) has become an independent watchdog that holds stakeholders in the crucial hydrocarbons sector and more recently solid minerals sector to account. Since 2017, NEITI has disclosed key data on its allocation of licenses, on the administration of oil and gas subnational transfers and on crude sales and other processes within the Nigerian National Petroleum Corporation (NNPC).
The NEITI reports form the basis for reforms in the oil, gas and mining industry, as was laid out in President Muhammadu Buharis 2015 political campaign manifesto, said Zainab Shamsuna Ahmed, Nigeria federal minister of finance and an EITI Board member. Inspired by the EITI, the Nigerian government now conducts monthly routine reconciliations for all sectors, not just the extractives, which has increased government revenues.

Norway
Norway has supported the EITI since its inception and is a widely lauded as a success story in the management of oil wealth. It was the first OECD country to implement the EITI, publishing eight EITI Reports from 2008 to 2015. In 2017, Norway was the first country to mainstream EITI implementation. Timely, comprehensive and reliable information is published through the governments Norwegian Petroleum website and in companies country-by-country reports.

Trinidad and Tobago
Trinidad and Tobago has achieved meaningful progress against the EITI Standard and was acknowledged for having built a dynamic platform to collect, publish, and debate information about how the countrys natural resources are managed. EITI Reports have identified gaps in revenue collection, production and cost monitoring and cadastre information.

28 2019 | Viewed: 661 | Press Releases | Read full
EITI Board approves Argentinas application to join the Extractive Industries Transparency Initiative
Government to use EITI to promote transparent and accountable management of natural resources

KYIV, 27 Feb., 2019 The EITI Board today approved Argentinas application to join the Extractive Industries Transparency Initiative (EITI) at its meeting in Kyiv, Ukraine. Argentina, the third-largest economy in Latin America, becomes the EITIs 52nd member country. The EITI is the global standard for the good governance of oil, gas and mineral resources.

I congratulate Argentina on becoming a member of the EITI family, said EITI Chair Fredrik Reinfeldt. The country has large shale gas reserves and the implementation of the EITI can help Argentina manage these resources to the highest standards. We look forward to working with stakeholders across the country to promote the sound governance of the extractives sector, as well as inform public debate and meaningful reforms.

By joining the EITI, Argentinas government commits itself to assuring full disclosure of information along its extractive industry value chain, from how extraction rights are awarded, to how revenues make their way through the government and how they benefit the public. The government also pledges to work together with industry and civil society to ensure an informed debate about how its natural resources are being managed. In accordance with the EITI Standard, Argentina is required to publish its first EITI Report within 18 months of becoming a candidate, i.e. by 27 August 2020.

Argentina has great potential both in oil and gas, and in mining, said Argentinas Secretary of Energy Gustavo Lopetegui. The acceptance of our country as a member of the EITI is an important milestone. It commits us all - companies, national government, provinces and civil society - to work together for a more transparent industry that can be accountable to all Argentines.
Argentina has the worlds second-largest shale gas reserves and the fourth-largest unconventional oil reserves, according to the US Energy Information Administration. The country also has significant mining activity and mineral reserves, including copper, silver, lithium and gold. The development of these reserves will require large and continued investments in the coming decades. Social and political conflict arising around large-scale mining and shale gas extraction sites represent a challenge that EITI implementation can help address through dialogue in the multi-stakeholder group.

The EITI is an opportunity and a challenge that will help strengthen the confidence and participation of companies and civil society, so that mining activity contributes to the balanced development of communities both in the present and in the future, said Secretary of Mining Carolina Sánchez.

Argentina applied for an adapted version of the EITI to take account of its federal structure. Each province owns and manages the natural resources in their territory. Argentina has therefore decided to implement the EITI in two phases. Phase one will involve the national government, the state-controlled oil and gas company, industry and civil society, while phase two is intended to include relevant provinces.

The five civil society organisations that are part of Argentinas multi-stakeholder group Fundación Directorio Legislativo, Fundación Cambio Democrático, Universidad Católica Argentina, Universidad Nacional de San Martín and CIPPEC jointly stated that there is a need for the collection and dissemination of reliable data regarding the revenues generated by extractive activities and how they are distributed, as well as information related to socio-environmental issues in the extractives.
For more information about the EITI process in Argentina, please visit Argentinas country page.
28 2019 | Viewed: 601 | Press Releases | Read full
Former New Zealand Prime Minister and UNDP Head Helen Clark Confirmed as EITI Chair Nominee
OSLO, Jan. 30, 2019 The Extractive Industries Transparency Initiatives (EITI) Board today announced that former Prime Minister of New Zealand Helen Clark is confirmed as the nominee to chair the EITI.

The former Prime Minister will assume her position following the EITIs Members Meeting [1], to be held on 17 June in Paris. Helen Clark will be replacing former Swedish Prime Minister Fredrik Reinfeldt, who has served as chair since February 2016.

The EITI is an international multi-stakeholder body that promotes the open and accountable management of oil, gas and mineral resources. It currently has 51 implementing countries.
Helen Clark is a widely respected global leader on sustainable development and international cooperation, and I am delighted that she has been nominated to succeed me, said Fredrik Reinfeldt. This is an important time for the EITI, when collective governance and facts-based policy is more important than ever. Her accomplishments as Prime Minister of New Zealand and UNDP Administrator reflected her commitment to transparency, accountability and inclusiveness. I am certain she will make an enduring impact on the EITIs work on good governance of natural resources, to ensure that the management of the sector contributes to sustainable growth and prosperity for all.

Helen Clark served three successive terms as Prime Minister of New Zealand from 1999 - 2008. While in government, she led policy debate on a wide range of economic, social, environmental, and cultural issues, including sustainability and climate change. She then became UNDP Administrator for two terms from 2009 - 2017 and was the first woman to lead the organisation. She was also the chair of the United Nations Development Group, a committee consisting of the heads of all UN funds, programmes and departments working on development issues.

It is a great honour to be nominated as the next chair of the EITI, Helen Clark said. I am convinced that enhanced transparency and accountability in the management of the extractives sector can contribute to real improvement in peoples lives, notably in the form of economic growth, access to energy and better infrastructure, and diminished corruption. I am very much looking forward to working with governments, supporting companies and civil society organisations to ensure that the EITI delivers on its mandate, which will contribute to the accomplishment of the Sustainable Development Goals.

EITI chairs are appointed for three-year terms. Former UK Secretary of State for International Development Clare Short and founder of Transparency International Peter Eigen have served as previous chairs.
31 2019 | Viewed: 100 | Press Releases | Read full
Fitch Affirms 6 Kazakh Financial Institutions; Downgrades ATF's & Centercredit's VRs
Fitch Ratings-Moscow/London-10 December 2018: Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of Subsidiary Bank Sberbank of Russia (SBK) at 'BB+' and JSC Halyk Bank (Halyk) and JSC Halyk Finance at 'BB' (HF). The Outlooks are Positive. Fitch has also affirmed the IDRs of ForteBank (Forte), ATF Bank JSC (ATF) and Bank Centercredit (BCC) at 'B' with the Stable Outlooks. The agency has downgraded the Viability Ratings (VRs) of ATF and BCC to 'ccc' from 'b'.

A full list of rating actions is at the end of this commentary.

KEY RATING DRIVERS - IDRS, NATIONAL LONG-TERM RATINGS, SUPPORT RATINGS (SBK, HALYK, HF)
SBK's 'BB+' Long-Term Foreign- and Local-Currency IDRs and '3' Support Rating (SR) are driven by the potential support that SBK may receive from its 100% shareholder, Sberbank of Russia (SBR; BBB-/Positive), in case of need. The Positive Outlook on SBK mirrors that on the parent. We assess SBR's propensity to support SBK as high, reflecting the CIS region's strategic importance to SBR, the high level of integration between the parent and its subsidiary, common branding, and possible reputational risks for the parent in case of a subsidiary default. However, we rate SBK one notch below its parent due to the cross-border nature of the parent-subsidiary relationship, the fact that we do not view SBK as a core subsidiary and SBK's considerable management independence. The overall probability of support is considered moderate, as indicated by the SR.

Halyk's ratings are driven by its standalone financial strength, reflected in its VR. There have been no material changes since Fitch's last review of the bank (see 'Fitch Revises Halyk's Outlook to Positive; Withdraws KKB's Ratings on Merger Completion', dated 2 August 2018 at www.fitchratings.com) and we have affirmed the bank's ratings.

HF is a wholly-owned core subsidiary of Halyk and its IDRs are equalised with the ratings of its parent to reflect this. The Positive Outlook on HF mirrors that on the parent. Fitch believes Halyk has a high propensity to support HF given ownership, integration, common branding, and significant negative reputational implications for Halyk in case of a subsidiary default. HF is small relative to its parent (representing below 0.5% of Halyk's total assets at end-1Q18) and its balance sheet is healthy, which limits the cost of any potential support in our view.

National Ratings reflect issuers' creditworthiness relative to other credits in Kazakhstan.

KEY RATING DRIVERS
IDRS, NATIONAL LONG-TERM RATINGS, SUPPORT RATINGS, SUPPORT RATING FLOORS (FORTE, BCC, ATF, HALYK)
The IDRs of Forte, BCC and ATF are driven by our view that there is a limited probability these banks would receive support from the Kazakhstan sovereign (BBB/Stable), in case of need. Fitch has reassessed the Kazakh authorities' propensity to provide extraordinary capital support to medium-sized privately-owned banks because of an improved track record of state support to the banking sector in 2017-2018. This revised view is based on the following:

i) A substantial buy-out of problem assets of KZT2.4 trillion (over 50% of total assets) from Kazkommertsbank prior to its acquisition by Halyk in 2H17.
ii) Moderate capital support in the form of cheap subordinated debt (partly booked as equity due to fair value gains) provided by the National Bank of Kazakhstan (NBK) to four medium-sized banks (with market shares of 4%-9%), including ATF and BCC, in 4Q17. The amount of provided capital ranged from 5% to 13% of banks' risk-weighted assets.
iii) Significant support to the second-largest bank in the country, Tsesnabank (9% of sector assets at end-3Q18), in 3Q18, which included KZT200 billion (10% of total liabilities at end-2Q18) of liquidity support from the NBK and a transfer of KZT450 billion of its loans (24% of gross loans at end-2Q18) to the state-owned Problem Assets Fund at book value.

However, we view the probability of state support as still limited, given the Kazakh authorities' mixed record of banking sector support in the past and the absence of clear statements regarding future state support for the banking sector.

Forte, BCC and ATF control deposit market shares of approximately 6%-7% and this corresponds to at least moderate systemic importance. In addition, the banks' liability structure, with a significant share of funding from state-related entities, could also positively influence the state's propensity to provide support.

Accordingly, we have revised the Support Rating Floors (SRFs) of Forte, BCC and ATF to 'B' from 'No Floor', and upgraded their SRs to '4' from '5'. The IDRs of ATF and BCC are now support-driven, while Forte's IDR is driven by both state support and its intrinsic credit strength, as expressed by its VR of 'b'. Fitch has also revised Halyk's SRF to 'B+' from 'B', one notch above the medium-sized banks, due to Halyk's higher systemic importance.

VRS (ALL BANKS)
Halyk's VR is the highest in Kazakhstan. It is the country's largest deposit-taker by far, controlling a market share of approximately 35%. Its VR reflects its dominant market position and reasonable risk appetite and management, strong performance, solid capital and good liquidity buffers relative to peers. On the negative side, Halyk's ratings continue to reflect a still high amount of legacy impaired loans.

The downgrade of BCC's and ATF's VRs to 'ccc' from 'b' reflects a persistently high volume of net impaired loans and non-core assets that could require both banks to absorb additional impairment losses. In Fitch's view, resolving these risks would most likely require external capital support and/or the potential bail-in of junior creditors, as pre-impairment profitability for both banks remains weak and core capital buffers are insufficient to absorb high potential losses.

Volumes of potentially problem assets at BCC and ATF are largely unchanged compared with previous reviews. However, we believe that the NBK is exercising heightened regulatory scrutiny of the banking sector in conjunction with its efforts to address sector asset quality problems. Regulatory forbearance for impaired loans recognition appears to be diminishing and it is increasingly likely that the NBK will force these banks to address their problems in the foreseeable future, in Fitch's view.

The affirmation of SBK's and Forte's VRs reflects limited changes in their credit profiles compared with the previous rating reviews. The VRs continue to capture their weak asset quality and exposure to Kazakhstan's highly cyclical and structurally weak economic environment. SBK's asset quality risks are lower than Forte's and this is the main driver of the former's one-notch higher VR.

VR (HALYK)
At end-3Q18, Halyk's impaired loans (defined as Stage 3 loans under IFRS 9) comprised 17.6% of gross loans and POCI loans added a further 3.1%. Stage 3 and POCI loans were reserved at a moderate 47%. However, downside asset quality risks are limited, in our view. This is because the quality of Halyk's largest loans is reasonable and impaired loans that were acquired as a result of the merger with Kazkommertsbank in 2018 and consolidated on net basis are deeply provisioned.

At end-3Q18, Halyk's net stage 3 and POCI loans were equivalent to 41% of Fitch core capital (FCC) while investment property and foreclosed assets added a further 20%. The Positive Outlook on Halyk's ratings reflects Fitch's expectation that unreserved impaired loans and other problem assets relative to FCC will gradually reduce as strong earnings retention continues to boost loss absorption capacity.

Halyk's capital adequacy can withstand moderate shocks, in our view. The FCC ratio reached 19.9% at end-3Q18. Capitalisation is supported by robust performance, which is likely to be sustainable in our view, and moderate asset growth. Halyk's liquidity buffer is solid, with liquid assets covering a substantial 57% of total liabilities at end-3Q18. The bank is largely funded by customer deposits.

VR (SBK)
SBK's VR reflects its weak asset quality and only moderate capital buffer. Impaired loans stood at 11% of gross loans at end-1H18 but were 1.3x covered by total loan loss allowances (LLA). Stage 2 loans were a moderate 10%. We believe that additional asset quality risks for SBK are only moderate, given deep provisioning of impaired loans.

SBK's FCC ratio was 12% at end-1H18. Our assessment is that capital is still vulnerable to even moderate shocks, given the risks associated with Kazakhstan's operating environment. SBK plans moderate asset growth and this is unlikely to exceed SBK's profit retention, in our view. SBK's net income has historically been volatile, impacted by loan impairment charges, but we expect performance to stabilise given currently reasonable loan loss cover.

The bank's funding profile remains solid, as expressed by SBK's low 87% ratio of gross loans to deposits. Liquid assets covered a high 40% of liabilities at end-1H18. SBK is predominantly funded by customer deposits. These are stable but highly concentrated with the largest depositors being state-related, as is common in Kazakhstan.

VR (FORTE)
Forte's VR is driven by its high legacy asset quality risks. Impaired loans were a high 27% of gross loans at end-3Q18 while Stage 2 loans were a further 5%. Impaired loans were 37% covered with total LLA. Positively, Forte's impaired loans portfolio is highly granular and most impaired loans are adequately collateralised, largely by residential real estate, which we regard as a relatively more liquid asset class in the country. Foreclosed assets and investment property were equivalent to 36% of FCC at end-3Q18, which we regard as an additional drag on Forte's capital adequacy.

Net impaired loans, stage 2 loans and foreclosed assets combined were equivalent to around 1.3x of end-3Q18 FCC, which is higher than at SBK, justifying the one-notch lower VR. These stocks should moderately decrease due to gradual recoveries and Forte's participation in a state mortgage refinancing programme.

The bank's FCC ratio was 15% at end-3Q18 but the bank's capitalisation is still vulnerable to even moderate shocks. Performance has been improving in recent years due to more efficient collection of accrued interest and higher operational efficiency.

Forte was 71% customer deposit funded at end-3Q18, while wholesale debt (25% of total liabilities) substantially increased when Samruk Kazyna swapped a KZT220 billion long-term deposit for senior bonds in 3Q18. Forte's contractual wholesale funding repayment schedule is comfortable, with most repayments not due until 2024. The bank benefits from a solid liquidity buffer covering 37% of customer deposits at end-3Q18.

VRS (BCC, ATF)
The VRs of BCC and ATF are driven by weak asset quality and loss absorption capacity. At end-1H18 BCC's and ATF's impaired loans equaled 31% and 22% of gross loans, respectively, and were 37% and 88%, respectively, covered by total LLA. Banks' exposures to stage 2 loans were also substantial, at 11.5% (BCC) and 27% (ATF) of gross loans, and these may require the banks to incur additional impairment losses.

Accordingly, net impaired loans were a substantial 1.9x (BCC) and 0.3x (ATF) FCC and stage 2 loans added a further 1.1x (BCC) and 3.4x (ATF) FCC. In addition, the on-balance sheet exposure to investment property, repossessed collateral and other non-core items equaled 0.7x (BCC) and 0.9x (ATF) FCC.

In Fitch's view, both banks' earnings may not be sufficient to absorb potential additional impairment losses related to the above-mentioned problem assets, and a material improvement of their performance is unlikely in the near term.

The banks' core capitalisation is weak, as expressed by low FCC ratios of 8.4% (BCC) and 6.9% (ATF) at end-1H18. Substantial problem assets materially exceed core capital buffers. Positively, junior debt buffers, including perpetual and subordinated debt, were significant and equaled 8.6% (BCC) and 12.9% (ATF) of risk-weighted assets at end-1H18. However, the contractual terms of these debt instruments do not envisage loss absorption triggers, and we believe that they may absorb losses only after the banks become non-viable.

Both banks are funded with relatively stable, although highly concentrated, customer deposits equaling around 80% of total liabilities at end-1H18. At end-1H18, contractual repayments of wholesale funding for the rest of 2018 and 2019 were limited to 5% (BCC) and 3% (ATF) of total liabilities. Liquidity buffers equaled a reasonable 27% (BCC) and 34% (ATF) of total liabilities at end-1H18.

DEBT RATINGS
Senior unsecured debt ratings are aligned with Long-Term IDRs and Banks' National Long-Term Ratings, reflecting average recovery prospects in case of default.

SBK's subordinated debt is notched down once from its Long-Term IDR and National Long-Term Rating, reflecting Fitch's view that support from SBR would likely be available for subordinated debtholders to cover the related non-performance risk.

The dated subordinated debt issues of ATF and BCC are notched down twice from the banks' VRs to reflect potential loss severity. The downgrade of the Recovery Rating on these debt issues to 'RR6' from 'RR5' reflects poor recovery prospects in case of default due to very thin layers of junior-debt relative to sizeable asset quality problems at both banks and low recovery expectations in Kazakhstan.

The perpetual debt ratings of BCC and ATF are rated three notches below their VRs, reflecting their deeper subordination, compared to subordinated debt.

SBK's debt ratings relate to bonds issued prior to 1 August 2014.

RATING SENSITIVITIES
IDRS, NATIONAL RATINGS, DEBT RATINGS, SUPPORT RATINGs, SUPPORT RATING FLOORS
The support-driven IDRs of ATF and BCC, and SRFs of Halyk and Forte, are sensitive to changes in our assessment of sovereign support for Kazakhstan's banking sector. An extended record of timely and sufficient capital support to privately-owned banks may result in moderate upside potential for the SRFs of these banks, and hence for the IDRs of ATF, BCC and Forte.

Conversely, evidence of weaker support and/or significant delays in addressing asset quality and capital problems in the sector, resulting in medium-sized private banks' insolvency or failure, could result in downgrades of SRFs, and of the IDRs of ATF and BCC.

The support-driven IDRs of SBK and HF are sensitive to changes in the ability of their parents to provide support.

National Ratings are sensitive to a change in creditworthiness relative to other Kazakh issuers.

Halyk's IDRs are sensitive to changes in its VR.

VRS
The VRs of the five banks are primarily sensitive to changes in asset quality and capital adequacy.

Fitch may upgrade the VRs of Halyk, SBK and Forte if the amount of net impaired loans, net stage 2 loans and other problem assets relative to FCC materially reduces, either due to recoveries, or due to deeper provisioning. This is more likely to be the case for Halyk, as reflected by the Positive Outlook on its ratings. Conversely, renewed asset quality pressure leading to a material increase in problem assets, may result in negative rating actions on these three banks.

The VRs of ATF and BCC may be downgraded if the likelihood of failure increases. Upside potential for the banks' VRs is limited given the extent of their asset quality problems.

The rating actions are as follows:

Halyk Bank of Kazakhstan
Long-Term Foreign- and Local-Currency IDRs: affirmed at 'BB'; Outlooks Positive
Short-Term Foreign- and Local-Currency IDRs: affirmed at 'B'
Viability Rating: affirmed at 'bb'
Support Rating: affirmed at '4'
Support Rating Floor: revised to 'B+' from 'B'
Senior unsecured debt: affirmed at 'BB'

JSC Halyk Finance
Long-Term Foreign- and Local-Currency IDRs: affirmed at 'BB'; Outlooks Positive
Short-Term Foreign- and Local-Currency IDRs: affirmed at 'B'
Support Rating: affirmed at '3'

Subsidiary Bank Sberbank of Russia, JSC
Long-Term Foreign- and Local-Currency IDRs: affirmed at 'BB+'; Outlooks Positive
Short-Term IDR: affirmed at 'B'
National Long-Term Rating: affirmed at 'AA-(kaz)'; Outlook Positive
Viability Rating: affirmed at 'b+'
Support Rating: affirmed at '3'
Senior unsecured debt: affirmed at 'BB+'/'AA-(kaz)'
Subordinated debt: affirmed at 'BB'/'A+(kaz)'

ATF Bank JSC
Long-Term Foreign- and Local-Currency IDRs: affirmed at 'B'; Outlooks Stable
Short-Term IDR: affirmed at 'B'
National Long-Term Rating: affirmed at 'BB+(kaz)'; Outlook Stable
Viability Rating: downgraded to 'ccc' from 'b'
Support Rating: upgraded to '4' from '5'
Support Rating Floor: revised to 'B' from 'No Floor'
Senior unsecured debt: affirmed at 'B'/'BB+(kaz)'; Recovery Rating 'RR4'
Dated subordinated debt: downgraded to 'CC'/'CCC(kaz)' from 'B-'/'BB(kaz)'; Recovery Rating changed to 'RR6' from 'RR5'
Perpetual debt: downgraded to 'C' from 'CCC'; Recovery Rating 'RR6'

Bank Centercredit
Long-Term Foreign- and Local-Currency IDRs: affirmed at 'B'; Outlooks Stable
Short-Term IDR: affirmed at 'B'
National Long-Term Rating: affirmed at 'BB+(kaz)'; Outlook Stable
Viability Rating: downgraded to 'ccc' from 'b'
Support Rating: upgraded to '4' from '5'
Support Rating Floor: revised to 'B' from 'No Floor'
Senior unsecured debt: affirmed at 'B'/'BB+(kaz)'; Recovery Rating 'RR4'
Dated subordinated debt: downgraded to 'CC'/'CCC(kaz)' from 'B-'/'BB(kaz)'; Recovery Rating changed to 'RR6' from 'RR5'
Perpetual debt: downgraded to 'C' from 'CCC'; Recovery Rating 'RR6'

ForteBank
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 'BB+(kaz)'; Outlook Stable
Viability Rating: affirmed at 'b'
Support Rating: upgraded to '4' from '5'
Support Rating Floor: revised to 'B' from 'No Floor'
Senior unsecured debt: affirmed at 'B'/'BB+(kaz)'; Recovery Rating 'RR4'
12 2018 | Viewed: 78 | Press Releases | Read full
Completion of merger of Kazkommertsbank into Halyk Bank
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30 2018 | Viewed: 135 | Press Releases | Read full
51 EITI countries: Netherlands joins and Solomon Islands withdraws.
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3 2018 | Viewed: 113 | Press Releases | Read full
Halyk Bank Recognized As the Best Bank in Kazakhstan According to EMEA Finance
Almaty, 20 April 2018 Following the European Banking Annual Awards 2017, EMEA Finance, the authoritative global magazine, again awarded JSC Halyk Bank (Halyk Bank) as the Best Bank in Kazakhstan.
26 2018 | Viewed: 204 | Press Releases | Read full
Fitch Affirms Three Kazakh Policy Institutions
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24 2018 | Viewed: 166 | Press Releases | Read full
The Asian Economy: Systemic Risks & Structural Reforms
On April 9, 2018, chaired by the anchor Martin Soong from CNBC, the BFA sub-forum, Asian Economy: Systemic Risks & Structural Reform was successfully held, featuring Sanjaya Baru, Dai Xianglong, Fan Gang, Masaaki Shirakawa, and Zhang Yuyan, The panelists shared their opinions regarding the trade war between China and the U.S., and predicted the prospect of Asian economies against the backdrop of reinforced cooperation among Asian countries
10 2018 | Viewed: 131 | Press Releases | Read full
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