Fitch affirms Kazakhstan's Subsidiary Bank Sberbank of Russia at 'BBB-', outlook stable

LONDON-MOSCOW. February 22. KAZINFORM. Fitch Ratings has affirmed Kazakhstan-based Subsidiary Bank Sberbank of Russia's (SBK) Long-term Issuer Default Ratings (IDR) at 'BBB-'; Outlook Stable. A full list of the rating actions can be found at the end of this commentary.

SBK's Long-term IDRs reflect Fitch's view of the high probability of support from the bank's sole owner, Sberbank of Russia (Sberbank, 'BBB'/Stable). Any future movement in SBK's Long-term IDRs is likely to be driven by changes in the parent's Long-term IDR.

In Fitch's view, Sberbank would likely have a high propensity to support SBK given the full ownership, common branding, the small relative size of the subsidiary (SBK accounts for less than 1% of Sberbank's consolidated assets) and hence moderate cost of any potential support, as well as Sberbank's strategic interest in developing its business in countries of the Commonwealth of Independent States. Sberbank has supported SBK's development to date with capital injections, and has also made a back up credit facility available to the subsidiary.

SBK's 'D/E' Individual Rating reflects the rapid recent and planned loan book growth, high single name concentration risk on both sides of the balance sheet, limited track record and still challenging operating environment. At the same time, it considers the bank's currently reasonable reported asset quality and capital ratios and modest liquidity risk.

According to local GAAP accounts, SBK's loan book grew by 96% in 2010. At end-9M10, non-performing loans (NPLs, 90+ days overdue) totalled 5% of corporate lending (2009: 4%). The top 20 borrowers made up 60% of gross loans, equivalent to 2.3x the bank's equity (2009: 59% and 1.6x, respectively). Corporate loan impairment reserves have notably increased to 7.6% of the gross corporate loans book from 4.6% at end-2009. Although the level of reported NPLs is currently moderate, Fitch notes that true asset quality is somewhat camouflaged by rapid loan growth and, accordingly, limited seasoning of the loan book, the agency's press release reads.

At end-2010, SBK was the ninth-largest bank in Kazakhstan by assets, with a market share of 2.4%. Since its acquisition by Sberbank in late 2006, SBK has focused on the corporate side of the business, and at end-9M10, corporate loans stood at 88% of total lending (2009: 89%).

The rating actions are as follows:

Long-term foreign and local currency IDRs affirmed at 'BBB-', Outlook Stable

Short-term foreign currency IDR affirmed at 'F3'

National Long-term Rating affirmed at 'AA(Kaz)', Outlook Stable

Individual Rating affirmed at 'D/E'

Support Rating affirmed at '2'

Subordinate notes ratings affirmed at 'BB+' and 'AA-(Kaz)'