Uzbekistan, Tashkent, Dec.22 / Trend, D.Azizov /
Fitch Ratings has upgraded Uzbekistan-based Microcreditbank's (MCB) Long-term foreign-currency Issuer Default Rating (IDR) to 'B' from ' B-', the agency's report said.
At the same time, the agency affirmed Asaka Bank's, Uzpromstroybank's (UPSB) and Agrobank's (AB) Long-term foreign currency IDRs at 'B'. The Long-term IDRs of all four banks carry Stable Outlooks.
The IDRs of all four banks reflect Fitch's view that there is likely to be a high propensity for the Uzbek authorities to provide assistance should the banks require it. This view is based on the close integration of the banks with the state, which is reflected in the direct and indirect control of majority stakes in the banks by the authorities, significant volumes of state-directed and policy lending, and the high proportion of funding provided by state agencies or state-controlled companies, the report said.
At the same time, the potential for such support is constrained by Uzbekistan's sovereign credit profile. The future direction of the banks' IDRs is likely to depend on the sovereign credit profile and the degree of integration with, and potential support from, the Uzbek authorities, Fitch analysts believe.
The Individual ratings of the banks reflect their narrow franchises and modest profitability, resulting from their policy functions. In addition, the challenging operating environment and actual or potential asset quality weaknesses could put pressure on capital ratios. At the same time, the ratings reflect the solid liquidity cushion maintained by the banks and very limited refinancing risks. The banks also benefit from support made available by the Uzbek authorities to many of the banks' borrowers, in particular those in the public sector.
Upside potential for the Individual ratings of all four banks is currently limited given the structure of the Uzbek economy and the policy roles of the banks. However, their stand-alone credit profiles could benefit from continued positive economic growth in Uzbekistan, an increase in capital adequacy ratios (less relevant for MCB, which currently already has a strong capital position) and greater franchise diversification.
Asaka's reported volume of problem loans (including 90 days overdue, restructured and under litigation) remained a significant 12.6% of the total portfolio at end-9M10, although in Fitch's view the level of asset quality problems may be higher.
The bank has increased its non-core assets (including foreclosed property and investments in troubled entities) to 106 billion soums (28% of equity at end-9M10) and it plans to invest at least additional 20 billion soums in preparation for their sale. The statutory capital adequacy ratio, although solid (19.5% at end-9M10), was compromised by modest loan impairment reserves (3.6% of the portfolio at end-9M10) and the non-core assets.
As a result of the first half-year of 2010, Asaka was the second-largest bank in Uzbekistan, holding about 12% of sector assets. The bank was initially set up to service the needs of the automobile sector; however, later it became a universal bank, providing services to various sectors of the Uzbek economy.
AB's credit profile is dominated by the single-sector concentration in its loan portfolio, with loans to agricultural companies comprising a large majority of the portfolio. Capitalisation is moderate and, thus, the bank had limited cushion to absorb loan losses. At the same time, loan impairment levels have been manageable to date.
As of the first half-year of 2010, AB was the third-largest bank in the country, with about 11% of sector assets. AB plays a central role in delivering agricultural credit, mainly to cotton and grain producers, in Uzbekistan.
Uzpromstroybank's loan portfolio loan portfolio is highly concentrated, with the top 20 borrowers accounting for 4.6x equity at end-9M10, although almost a half of these were covered by sovereign guarantees. The quality of the state-guaranteed portfolio (around 25% of gross loan book) remained poor, while the reported performance of non-guaranteed loans appeared manageable at end-9M10, particularly after some of Uzpromstroybank's long-standing clients repaid the loans restructured in 2009. However, UPSB resumed lending to these customers and at end-9M10 they still remained among the bank's largest borrowers. Uzpromstroybank's loss absorption capacity was very limited as reflected by its low impairment reserves (2.1% of the portfolio) and tight statutory capital adequacy ratio (11.5% at end-9M10). An equity injection of 30 billion soums from the state is tentatively scheduled for 2011.
Uzpromstroybank is focused on servicing large corporate clients, particularly from the oil, gas, power and chemical industries. At end-H110 UPSB was the fourth largest bank by assets in Uzbekistan, with a market share of about 10%.
MCB's loan book is diversified by name, although the single industry concentration was substantial at end-Q310, with direct exposures to the agricultural sector accounting for 60% of the loan portfolio, while some borrowers from other industries were also connected with the agricultural business. The bank's credit profile has been supported by very limited credit losses reported to date and the significant capital cushion (capital adequacy ratio was 32% at end-9M10, even despite the seasonal peak in lending).
As a result of January-June 2010, MCB was the eighth-largest bank in the country, with about 2.9% of sector assets. The main objective of the bank is to promote the development of microfinance services, particularly in the rural areas of Uzbekistan.