The rating affirmation follows the 25 February announcement by South Korea’s Kookmin Bank (Kookmin, ‘A+’/F1/ Stable/Individual ‘B/C’) that it has increased its stake in BCC’s total share capital to 42% from 30%, and that the International Finance Corporation (IFC) has acquired a 10% stake. While Fitch views the capital injection and the increased foreign shareholder participation as positive, the expectation that the transaction would be completed was already factored into the bank’s ratings. In the agency’s view, moderate financial support for BCC from Kookmin is possible, in case of need, but Kookmin’s gradual approach to its acquisition of BCC, its apparent keenness to avoid consolidation of BCC at least in the near term and the limited integration between the two banks (notwithstanding substantial management oversight from Kookmin) mean that support cannot be relied upon in all circumstances.

Kookmin now holds a 29.6% stake in BCC’s ordinary share capital, with its remaining stake comprising preference shares, which, Fitch has been informed are convertible into ordinary shares at the decision of BCC’s board of directors (BoD). The IFC has a put option to sell its stake to Kookmin from February 2013. Should Kookmin purchase the IFC’s stake and be able to convert the preference shares, it would consolidate a controlling stake in BCC, which would likely result in a multi-notch upgrade of BCC. However, Fitch notes the long time frame for the completion of the acquisition, the absence of any statement from Kookmin in respect to its intention to consolidate a majority stake and uncertainty as regards provision of support for BCC while Kookmin remains a minority shareholder. Should Kookmin increase operational integration between the banks, take on non-equity funding exposure to BCC (no material amounts provided to date) or make statements in respect to its intention to support and/or ultimately acquire BCC, this might generate limited rating upside for BCC prior to the completion of the acquisition.

BCC’s ratings and Outlook reflect its considerable loss absorption capacity compared to current asset quality metrics and potential further loan impairment recognition, as well as its currently strong liquidity and moderate large ticket debt repayments in the near- to medium-term. On 22 January 2010, Fitch revised BCC’s rating Outlook to Stable from Evolving, reflecting the improvement in loss absorption capacity, still moderate reported levels of non-performing loans and the improved outlook for the Kazakh economy.

BCC is the fourth-largest bank in Kazakhstan with 10% of assets and 14.8% of retail deposits at end- 2009. Kookmin will now have two out of six seats on BCC’s BoD, while the IFC will have the right to nominate one member. The stake of the chairman of the board of directors, Bakhytbek Bayseitov, and senior management in total share capital has decreased to 34.7% (42.7% in ordinary shares) from 53.2% (all ordinary) as a result of the recent transaction, and they will continue to nominate three members of the board.

The rating actions are as follows:
Long-term foreign currency IDR: affirmed at ‘B’; Outlook Stable
Short-term foreign currency IDR: affirmed at ‘B’
Support Rating: affirmed at ‘5’
Individual Rating: affirmed at ‘D/E’;
Senior unsecured debt: affirmed at ‘B’; Recovery Rating at ‘RR4’