FITCH OUTLOOK ON KAZAKH'S BANK CASPIAN CHANGED TO POSITIVE

Fitch Ratings, the international rating agency, has today changed Kazakhstan-based Bank Caspian's ("Caspian") rating Outlook to Positive from Stable. At the same time, the agency has affirmed the bank's ratings at Long-term 'B-' (B minus), Short-term 'B', Individual 'D/E', and Support ?'. The Positive rating Outlook reflects the growth of Caspian's business, its increasing profitability and operating efficiency, as well as the improving operating environment in Kazakhstan. However, the ratings remain constrained by a relatively low reserve coverage of the bank's rapidly expanding loan portfolio and its relatively small, though growing, size and market share. In addition, Caspian's ambitious expansion plans need to be supported by further external contributions to its capital, although the current level is acceptable. Caspian's performance has improved on the back of a growing Kazakhstani economy and a higher volume of lending. At the same time, tight overhead controls and closing of unprofitable offices throughout Kazakhstan have led to a slight decline in operating expenses. The customer loan portfolio grew very rapidly in 2002 and 9M03, but levels of concentration remain significant. Reserve coverage of total loans is c.3%, which Fitch considers too low for an environment as volatile as Kazakhstan. However, the strong loan growth and the already high share of provisioning in the bank's profits are likely to restrict Caspian's ability to build up its reserves to a more adequate level. As loan growth outstripped deposit growth in 2003, liquidity has tightened, although it is supported by Caspian's sizeable portfolio of government securities, which can be used for repo transactions with pension funds. In the next few months the bank plans to increase its long-term funding by placing a new issue of subordinated bonds totalling KZT7.5 billion, which has already been registered with the regulatory authorities. Capitalisation was acceptable at end-September 2003, with a Tier 1 ratio of 13%. Despite the anticipated loan portfolio growth and low level of loss reserves, the bank does not expect its Tier 1 capitalisation to decline in the short term as it has planned new share issues for 2004.