Baku, Azerbaijan, Dec. 19
By Elena Kosolapova – Trend:
S&P Global Ratings has affirmed its 'B+/B' long- and short-term counterparty credit ratings on Uzbekistan-based KDB Bank Uzbekistan (KDB Uzbekistan), the outlook remains stable, the ratings agency said in a message.
“The affirmation reflects our expectation that KDB Uzbekistan's market position and financial performance will remain stable in the next 12-18 months,” said the message.
S&P also anticipates that KDB Uzbekistan will maintain close strategic and operational ties with its parent, Korea Development Bank (AA/Stable/A-1+), which supports its above-average funding characteristics, while the bank's conservative approach to lending and strict risk management practices will stay broadly unchanged.
In the rating agency’s view, the bank's capital position will remain adequate in the next 12-18 months, as reflected in the agency’s projected risk-adjusted capital ratio of 8.4-8.6 percent.
The bank will keep its relatively sound ability to generate capital internally and S&P anticipates that the return on equity will be 20-25 percent and the dividend payout ratio will not exceed 20 percent in the next two years.
The agency has revised up its assessment of KDB Uzbekistan's funding to above average from average. This reflects the agency’s view that the bank's deposit base will be sticky, while its asset base will stay predominantly short term in nature, which is now reflected in the bank's much stronger funding metrics than those of peers.
In particular, the bank's stable funding ratio was 814 percent in late 2015 versus an average of about 250 percent for peers, the agency said. The bank's funding mainly consists of current accounts of large local and international corporations operating in Uzbekistan, the message noted.
S&P notes that, despite their short-term nature, current accounts have been very stable for the last two years. Moreover, customer balances are placed at interest rates close to zero, according to the message.
“In our view, this reflects the bank's sound client franchise as a subsidiary of a large and highly rated international banking group,” the message said.
“In our view, KDB Uzbekistan's asset quality will remain high and stable,” the ratings agency said. “Since 2014, the bank has had no nonperforming loans, while average credit losses for the last five years were close to zero. This reflects the bank's selective and conservative approach to lending, which will likely remain unchanged.”
The stable outlook on KDB Uzbekistan reflects the agency’s view that the bank will continue to focus on servicing mostly corporate clients over the next 12-18 months, while maintaining its capitalization and risk profile at current levels.
“We are unlikely to raise the ratings on KDB Bank Uzbekistan over the next 12-18 months, unless the sovereign's creditworthiness improves,” the message said.
The ratings agency might lower the ratings on KDB Uzbekistan to reflect heightened economic and industry risk, such as a deterioration in the sovereign's creditworthiness.
If Korean Development Bank were to reconsider its ongoing support for KDB Uzbekistan, and its presence in Uzbekistan, this might also lead S&P to reassess downward both the financial profile and business profile of the bank, and consequently to lower the agency’s rating on the bank.
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