Tashkent, Uzbekistan, Feb. 2
By Demir Azizov– Trend:
Fitch Ratings has upgraded the Long-Term Issuer Default Ratings (IDR) of Ipak Yuli Bank (IY) and PJSB Trustbank (TB) to 'B' from 'B-' and Universalbank (UB) to 'B-' from 'CCC'. The Outlooks are Stable, Fitch Ratings said.
“The upgrades of the banks' ratings mainly reflect their extended records of reasonable performance and asset quality, partly owing to Uzbekistan's stable economic environment, which has been resilient amid the regional downturn,” the message said.
According to the message, however, the ratings still factor in structural weaknesses in the economy, the country's tightly regulated FX market and the banks' modest and fairly concentrated franchises in the state-dominated banking sector.
The Stable Outlooks reflect Fitch's view that the banks' credit profiles are unlikely to deteriorate significantly in the near term.
Asset quality remains adequate in all three banks, with non-performing loans (NPLs, 90 days overdue) staying in low single digits at end-3Q16 (IY: 1.3 percent of loans; TB: nil; UB: 3 percent).
NPL reserve coverage was strong in IY (3x by total reserves, 30 percent by specific reserves) and moderate in UB (50 percent both by total and specific reserves), while TB's reserves were 4 percent of gross loans.
Borrower concentration levels are moderate in IY (the top 25 borrowers accounted for 21 percent of loans at end-3Q16), but high in TB (50 percent) and UB (57 percent).
Foreign-currency (FC) lending is moderate at IY (21 percent of loans) and low at TB and UB (1 percent and 0 percent of loans). Additional risk stems from FC letters of credit covered by local-currency deposits (11 percent of Fitch Core Capital (FCC) at IY and 8 percent of FCC at TB), although according to management most FC loans and letters of credit were issued to exporters who have access to FC.
Banks keep moderate long FC positions (below 15 percent of equity), which mitigates FC risks. Official exchange-rate depreciation has been moderate recently (13 percent in 2016, 14 percent in 2015), but the potential shift to a more flexible FX regime may trigger a sharper devaluation.
Capital buffers were moderate relative to the banks' risk profiles. The end-2016 regulatory total capital ratio was rather tight at IY (12.9 percent; regulatory minimum 12.5 percent from January 2017), but should improve by about 0.4 pps after planned subordinated debt injections. Ratios were more adequate at TB (15.5 percent) and UB (19.1 percent).
The banks' funding was sourced mainly from customer deposits (79 percent of total liabilities at IY, 98 percent at TB and UB), which are short term, but have been broadly stable at all three banks. Depositor concentrations are high at TB (the largest 20 deposits accounting for 67 percent of total customer funding at end-3Q16) while IY's and UB's deposits are more granular (31 and 43 percent respectively). IY is the only bank with meaningful borrowings from international financial institutions (16 percent of liabilities), but foreign debt repayments are manageable (3 percent of total liabilities in 2017) and linked to loan repayments.
Liquidity profiles were reasonable at all banks due to solid buffers (at end-2016 liquid assets, net of near-term repayments, were in the range of 30 percent -50 percent of customer deposits at all three banks).
The banks' Support Rating Floors of 'No Floor' and their '5' Support Ratings reflect banks' limited systemic importance and Fitch's view that extraordinary support from the Uzbek authorities is therefore unlikely.
Upside for the banks' ratings is currently limited, but could arise in case of an overall improvement in the operating environment.
The banks' ratings could be downgraded in case of significant deterioration in the operating environment or a weakening of asset quality and capital metrics.
Trustbank, with its main focus on rendering financial services to the companies on the stock exchange and wholesale trade, was established in 1994. It was transformed into a private bank upon the shareholders' decision in 2006.
"Universalbank" was created in 2001. The shareholders of the bank are private companies and physical entities.
"Ipak Yuli" bank was created in 1990. The bank`s shares are owned by about 1,000 shareholders - legal and physical entities, the largest of which are the "UzbekInvest" National Export-Import Insurance company (about 18 percent) and the Asian Development Bank (13.56 percent).
Uzbekistan currently has 26 commercial banks. Three of them are state-run banks, five banks with foreign capital, 11 - joint-stock banks and seven private banks.
The official exchange rate on Feb. 2 is 3280.25 soums/$1.