Fitch affirms Kazakhstan Mortgage Company at BBB, predicts more positive ratings

ASTANA – Fitch Ratings has affirmed the long-term issuer default ratings (IDR) of the Kazakhstan Mortgage Company (KMC) in foreign and national currency at the level of BBB- with Stable Outlook, according to Fitch ratings published in October.

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Fitch predicts positive ratings, if Kazakh governmental support for KMC’s is unchanged.

KMC is one of the main state entities that are directed to increase housing affordability in Kazakhstan. Fitch views the ability and willingness of Kazakhstan, the ultimate sponsor, to support KMC as high. The state funds to KMC comprised more than 80 percent of all funds at the end of 2017. National Management Holding Baiterek (BBB/stable/F2) provided a 30-year loan with a low interest rate totaling $364.34 million.

As for the socio-political perspective, Kazakh President Nursultan Nazarbayev in his recent State’s Address pointed out housing affordability as one of the priority sectors of development. Yet Fitch thinks that KMC’s default would temporarily jeopardise continued provision of important public services and could have significant political consequences for the state

The role of KMC is to provide long-term funding to the mortgage market by reviving it through new programmes and bond issuances. Fitch reports that this makes KMC dependent on regular access to funding, and hence any default can severely affect the company’s mandate.

In addition, Fitch noted concern in the direct competitiveness of potential KMC replacements in the Kazakh housing market, such as House Construction Savings Bank of Kazakhstan (BBB-/Stable) and mortgage organisation Baspana, which is a ful subsidiary of the National Bank of Kazakhstan.

“We assess that a default of KMC could significantly impair investors’ confidence in the credibility of the Kazakhstani quasi-government sector, as other GREs (Government-Related Entities) tap the same financial market and the list of domestic investors is not long,” stated in the report with reference to the financial implications of default.

Following the recent trend, Fitch predicts that KMC should remain profitable with low-cost state funding in the medium term.