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. Last Updated: 07/27/2016

Moody's Could Cut KKB Rating

LONDON -- Moody's Investors Service said Thursday that it may cut its rating on Kazkommertsbank, Kazakhstan's largest bank, on concerns over its rapid lending growth and its funding strategy, given market turbulence.

The news exacerbated the already huge losses on Kazakh banks' cash bonds and credit default swaps, traders said.

"Until recently, KKB has been focused on very rapid lending expansion financed to large extent by substantial borrowings from abroad," Moody's said in a statement.

It said the bank's loan portfolio had quadrupled between the start of 2005 and the end of the first half of 2007, while market borrowings, mainly Eurobonds and syndicated bank loans, accounted for 60 percent of total liabilities as of mid-2007.

"The recent market turbulence and consequent liquidity crisis have substantially reduced KKB's capacity to attract market funding, increasing its exposure to refinancing risk and testing its business model," Moody's warned. "Another negative rating driver is the significant possibility of a material deterioration of the bank's loan portfolio quality due to the rapid growth in lending and the high concentration of construction and real estate exposure."

Traders said investors had been rushing to buy protection on Kazakh bank debt via credit default swaps, derivatives that hedge against default or restructuring.