On August 15, S&P confirmed the long-term and short-term ratings at 'BB-'and revised the forecast from negative to stable. The rating according to the national scale was also upgraded from 'kzA-' to 'kzA'.
The revision of the forecast reflects S&P's expectations about the bank's strong ability to generate profits, which will help to overcome the complex operating environment. Sufficient level of capital and its stable increase due to profits will support the relatively rapid growth of the bank, while ensuring sufficient coverage of the potential increase in credit risk in the implementation of unsecured consumer lending.
The bank demonstrates stable performance for five years, the average return on equity is 28.7% over the period against the background of a hostile operating environment. It is also one of the few banks that have not applied for state financial support or emergency cash inflows from shareholders over the past five years. Due to its business model, the bank also has a relatively high commission income compared to other banks, which makes it less susceptible to a possible reduction in interest income.
Over the next 18 months, S&P analysts expect that the bank will be able to absorb any potential increase in credit expenditures in the unsecured consumer lending sector (which is the main focus of lending activities). It is expected that the level of problem loans Kaspi Bank will be about 8%-9% over the next two years, which is well below the level of problem loans that S&P estimates for the banking system as a whole (25-30%).
Our opinion. In our previously published report reviewing of the financial condition and investment attractiveness of Kaspi Bank's debt securities, we also noted improvement in the bank's key indicators, as well as high yield and sufficient financial stability.
Currently Kaspi Bank is showing a period of rapid growth. At the same time, this growth is quite qualitative, as indicated by the presence of a low percentage of non-collected interest income (6.2% in 2017) and as noted by S&P have a low share of bad debts overdue for more than 90 days (<9%). The Bank is engaged in building an extensive "ecosystem" of related banking services, which ensure a significant commission income. These commission incomes are 91% higher than net interest income, which allows maintaining a high level of profitability even with a strong deterioration in the quality of the loan portfolio.
Based on the results of operations and financial performance Kaspi Bank is currently one of the best banks in Kazakhstan, which is also confirmed by S&P's 'BB-'rating with a 'Stable' outlook, which is quite high compared to other banks (for comparison, a similar rating level: Halyk Bank 'BB', Alfa Bank 'BB-', VTB 'BB+'). For 6 months of 2018, Kaspi Bank's net profit amounted to T46.7bn, which is 128% higher than in the same period last year and allowed the bank to increase its equity by 21% from the beginning of the year. The level of overdue debt for the first half of the year decreased by 0.5pp and amounted to 7.5%, while the level of provisioning of the bank has increased by 1.3pp since the beginning of the year and amounted to 10.9% of the loan portfolio.