Standard & Poor’s publishes its assumptions for credit stress testing Kazakh banks
Tashkent, Uzbekistan (UzDaily.com) --
On 10 December, Standard & Poor’s Rating Services published its assumptions for credit stress testing of Kazakh financial institutions in an article titled "Assumptions: Credit Stress Testing Banks In Kazakhstan".
Our new scenario assumptions are in accordance with our methodology for stress testing outlined in "Credit Stress Testing For Financial Institutions," published on 29 April 2009.
- Under our base-case scenario, we assume that systemwide cumulative credit losses (mainly in the form of new provisions) on nonfinancial private-sector loans in Kazakhstan should represent 24% of these loans over the 2009-2011 period.
- Under our downside scenario, we assume the figure to be 42%.
- We assume lower loss rates for nondefaulted banks at 15% for our base-case scenario and 32% for our downside scenario.
"We will review the credit ratings on Kazakh banks in light of these scenario assumptions," said Standard & Poor’s credit analyst Mikhail Nikitin, one of the authors of the report.
"We expect no major rating actions as a result of stress testing, as we believe that our existing Kazakhstan bank ratings already reflect high system stress," added Standard & Poor’s credit analyst Ekaterina Trofimova, the other author of the report.
The assumptions apply to the entire Kazakh banking sector. “We will apply customized assumptions case by case to loans and other assets of Kazakh banks. The application of systemwide assumptions to individual rated Kazakh banks may differ from the application to the entire system, due to portfolio mix and single-name or group concentrations. Many Kazakh banks have concentrated corporate loan books and single name and industry exposures can lead to material divergence between banks. We expect that restructured loans, especially those of corporate borrowers, will constitute most of the systemwide estimated problem loans”, the company said.
"By the end of 2009, we expect Kazakh banks’ problem loans to exceed 50% of total loans for the system as the whole, but reach only 40% for nondefaulted banks," added Ms. Trofimova.
“We define problem loans as cumulative nonperforming loans (loans overdue by more than 30 days, including performing portions of loans with missed repayments, and loans to related parties of problem borrowers), restructured loans, and loans involving repossessed collateral”, the company noted.
The criteria outlined in this article are effective immediately, it added.