LONDON, Feb 2 (Reuters) - Ratings agency Fitch said on Monday it was watching Kazakhstan and its troubled banking system very closely after it effectively nationalised its largest bank, warning further banking sector problems could hit the sovereign rating.
Kazakhstan effectively nationalised its largest bank, BTA BTAS.KZ on Monday and launched a rescue deal to help support another, Alliance Bank ALLBq.L. Fitch rates Kazakhstan as BBB- with a negative outlook.
“It is a rapidly developing situation which we are monitoring closely,” Fitch analyst Andrew Colquhoun told Reuters in a telephone interview.
“If this measure reflects a view that the problems in the banking sector are much worse than we previously believed -- requiring still more support from the sovereign -- then that could be materially negative for the sovereign ratings.”
He said Kazakhstan had set aside $5 billion from its oil fund to support the banking system and remain within that envelope, as well as having relatively low sovereign debt of around 4 percent of gross domestic product and reserves of 31 percent of GDP.
“But if the situation deteriorates too far then even those resources may be eroded, adding to downward pressure on the sovereign ratings,” he said.
The cost of insuring Kazakhstan’s debt in the default swaps market increased sharply on Monday, up some 200 basis points to 950-1050 basis points meaning it would cost $950,000-$1 million to cover $10 million of five-year debt against default or restructuring. (Reporting by Peter Apps; editing by Stephen Nisbet)