Moody's ups outlook on Uzbek bank system

Uzbekistan, Tashkent, Sept. 11 / Trend D.Azizov /

Moody's Investors Service changed the outlook for Uzbekistan's banking system to stable from negative, reflecting its resilience in the face of the global economic downturn, stabilizing asset quality and improved capitalization levels, Moody's Banking System Outlook on Uzbekistan said.

Moody's lowered the forecast changes in the fundamental credit indicators of the Uzbek banking system from"stable" to "negative" in August last year.

The deterioration of the financial health of the banks' borrowers, which was a key concern last year, has been mitigated by the country's continued economic growth fuelled by the government's counter-cyclical fiscal measures.

According to Moody's, in the next 12 to 18 months, recovering demand for Uzbekistan's export commodities, combined with growing internal consumption, should provide for supportive macroeconomic conditions and thus limit asset-quality problems for the banks.

Banks' capital levels have notably strengthened since 2008, owing to the government's injection of more than 400 billion soums (approximately $300 million) into several of the largest Uzbek banks. Coupled with their earnings generation capacity, the banks now have a sufficient cushion to absorb anticipated credit and investment losses and, at the same time, support the 15%-20% annual growth Moody's expects in their loan books over the next 12-18 months.

Despite the stabilisation of the outlook's key drivers, Moody's cautions that longstanding weaknesses persist in the country's banking system. Its banks' standalone financial strength ratings (BFSRs) are a low E+ on average and are unlikely to improve because of the sector's structural weaknesses and the underdeveloped regulatory and supervisory framework. Continued weakness in corporate governance and risk management, as well as rudimentary strategy-setting and management processes, also restrain the banks' BFSRs.

The Uzbek banking system includes 32 banks, including three state banks.

In 2009, Uzbek banks' total assets grew by 30.2 percent up to 15.703 trillion soums, their loan portfolio by 34.3 percent up to 8.557 trillion soums, and their capital by 38.7 percent up to 3,104 trillion soums.

Uzbek commercial banks' total assets increased by 27.2 percent up to 19.969 trillion soums in the first half of 2010 compared to the same period of 2009. The aggregate bank capital increased by 12.1 percent - up to 3.375 trillion soums as of July 1, 2010. The total amount of credits allocated to the real economy amounted to 11.148 trillion soums (a 30.3 percent increase). The total balance on deposit accounts of the population grew by 33.8 percent.

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