OREANDA-NEWS. October 05, 2011. Moody's Investors Service has downgraded to B2 from B1 the long-term local currency issuer rating of Kazakhstan Mortgage Company (KMC) - a Government-Related Issuer (GRI). The outlook on the B2 issuer rating is negative, reported the press-centre of KASE.

The issuer rating now incorporates a weaker Baseline Credit Assessment (BCA) of 16 (from 15) on a scale of 1 to 21, where 1 represents lowest credit risk - in accordance with Moody's GRI rating methodology.

RATINGS RATIONALE

The downgrade of KMC's long-term issuer rating to B2 from B1 was triggered by the deterioration of the company's credit profile, and particularly reflects:  (i) b ongoing recurring losses that increased in the first six months of 2011 following the deterioration of the company's net interest margin (NIM) which was negative (-0.95%) in H1 2011; (ii) further erosion of the shareholders' equity that shrunk by 5% in H1 2011; and (iii) in Moody's view, the unclear prospects of the company's business profile given the ongoing reduction of KMC's loan book for the third successive year since 2009 (in the first six months of 2011, the gross loan book declined by 4.3%, compared with a 9.9% decline in 2010 and a 3.3% decline in 2009).

Moody's believes that the ongoing deterioration of KMC's financial fundamentals is eroding the company's capital, and renders the sustainability of its business potentially vulnerable in the long-term horizon.

At the same time, KMC's B2 rating is supported by the (i) currently high level of capital adequacy whereby the Basel I Tier 1 capital adequacy ratio was 26% as at end-June 2011, and (ii) reasonable cushion of liquid assets (including cash, deposits with banks and securities), which accounts for 38% of the company's total assets as at end-June 2011 that - along with limited repayments of wholesale funding over the next 12 months - positively affects KMC's liquidity position in the short to medium term.

The re-mapping of KMC's BCA down to 16 from 15 (in accordance with Moody's GRI methodology), along with Moody's assessment of a moderate level of government support that is incorporated into KMC's rating, corresponds to the long-term issuer rating of B2. The negative outlook on the B2 rating reflects the ongoing deterioration of the company's financial fundamentals mentioned above.