OREANDA-NEWS. March 12, 2010. Moody's Investors Service today downgraded Alfa-Bank Kazakhstan's (ABK) local and foreign currency bank deposit ratings to B2 from Ba3. The bank's bank financial strength rating (BFSR) of E+, which now maps to a baseline credit assessment (BCA) of B2, was affirmed. The outlook on the bank's long-term ratings and BFSR is stable, reported the press-centre of KASE.

The downgrade of ABK's deposit ratings to B2 reflects: (1) Moody's reassessment of probability of parental support previously incorporated into the bank's ratings, (2) ABK's modest franchise in Kazakhstan, with uncertain opportunities to strengthen it preserving the capital adequacy and liquidity at present level and (3) the bank's weak core profitability.

Moody's reassessment of parental support probability was prompted by the change in the ABK's beneficiary owner from Russian Alfa-Bank (ABR, rated Ba1/Not-Prime/D, with Negative outlook) to Alfa Group's holding company ABH Holdings Corp. (ABHH) as a result of a 5-year call option agreement on 100% shares of ABK signed between ABR and ABHH in 2009. According to the call option, all potential voting rights and economic benefits relating to ABK were transferred from ABR, still legally regarded as ABK's sole parent, to ABHH. As a result, ABR no longer consolidates ABK.

The reassessment of parental support also takes into account a precedent of a negative track record of support from ABR to its sister bank Alfa Bank Ukraine (ABU) in June 2009. At that time, ABU executed a distressed exchange of its Eurobonds and neither ABR nor other Alfa Group operating companies extended their support to ABU, on grounds that as it was not their direct subsidiary.

Despite the currently high liquidity and capital cushions, ABK's standalone credit strength is constrained by its weak domestic franchise value, with narrow client base, high concentration on the largest credit exposures and weak profitability. While the bank's strategy is to expand its business, Moody's  believes the major constraining factors are likely to be maintained in 2010.

Moody's previous rating action on ABK was implemented on 24 February 2009 when its local and foreign currency deposit ratings were confirmed at Ba3 and the outlook on all long-term ratings was changed to negative from stable.

The principal methodology used in rating ABK are "Bank Financial Strength Ratings: Global Methodology" and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology", which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating Alfa Bank Kazakhstan can also be found in the Rating Methodologies sub-directory on Moody's website.

Alfa-Bank Kazakhstan (Kazakhstan) is headquartered in Almaty and reported total assets of USD246 million and total equity of USD63 million, according to the company's audited consolidated statements as of YE2008.