Alliance Bank Sees Deal on Capital Norms as Fitch Warns on Debt

Alliance Bank, the Kazakh lender that Fitch Ratings said faces a possibility of a new debt restructuring, is counting on a “special agreement” with the country’s regulator to avoid breaching new capital requirements.

The Kazakh central bank has ordered domestic lenders to use international financial reporting standards to calculate loan-loss reserves, Almaty-based Alliance said in its 2012 audited financial results published yesterday. While the regulations haven’t come into force yet, the bank will need to increase reserves after switching to the new rules based on its results for last year, according to the statement.

Fitch, which downgraded Alliance’s credit rating one step to CCC on May 24, said that its “understanding” is the regulator may no longer accept the bank’s insufficient level of capitalization “beyond the near term,” indicating that a new debt overhaul is possible if parent company Samruk-Kazyna fails to sell the bank “in reasonably short order.”

After holding consultations with the central bank, Alliance’s management won reassurances that a “special agreement” will keep it in compliance with prudential norms, the bank said. “If such a deal will be reached, management believes it will be in place at least until the bank will be sold to a new non-state owner, with which the regulator will discuss a detailed recapitalization plan,” Alliance said.

Alliance was the first Kazakh lender to default in 2009 after government-appointed managers found $1.1 billion of liabilities that weren’t reflected on its balance sheet. Samruk-Kazyna, which holds the state’s stakes in Temirbank and Alliance, the country’s eighth- and 13th-largest banks by assets, has been considering their merger as it prepares to sell the two lenders it acquired in bailouts.

Kazakh billionaire Bulat Utemuratov is considering an acquisition of Alliance and Temirbank from the country’s government, according to two people with knowledge of the matter.

Alliance Bank is in talks with the regulator on the timing and conditions of its shift to the new requirements, the lender said by e-mail without elaborating.

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