Uzbekistan, Tashkent, Nov. 1 / Trend , D.Azizov /
Fitch Ratings has placed OJSC Agrobank's ratings, including its 'B-' foreign currency and 'B' local currency Long-term Issuer Default Rating (IDRs), on Rating Watch Negative (RWN), the agency reported.
The rating action reflects Fitch's concerns about Agrobank's financial position, which in particular may be negatively affected by a potential contingent liability resulting from an ongoing litigation process. The bank has not yet published its IFRS accounts for the financial year 2010, and Fitch understands that the delay was primarily caused by Agrobank's inability to determine the appropriate provision for the contingent liability.
While there is significant uncertainty about the extent of any losses the bank may face, in Fitch's view, the potential negative impact from the contingent liability may be material enough to significantly undermine Agrobank's already weak capital position.
Fitch notes that the bank has traditionally operated with relatively low capital adequacy ratios, which fluctuate during the year due to the seasonal pattern of the bank's lending business.
Since June 2011, Agrobank has breached the minimum regulatory capital adequacy level (10%). The breaches have been quite marginal: at end-9M11 the capital ratio was 9.6%, and the bank became compliant with regulatory requirements after a substantial loan repayment in October (the ratio increased to 12.3% at 20 October 2011). However, internal capital generation has been weak, reflecting the bank's role as a government instrument for socio-economic policy, and in 9M11 the bank recorded small operating losses resulting from increased payroll expenses and some growth in impairment charges.
Agrobank's management has informed Fitch about a potential UZS300bn equity injection for the bank being discussed at the government level. The recapitalisation process may start before the year end, although the bank expects that this will be executed in several steps during one year.
"Fitch will resolve the RWN after receiving more information about the contingent liability and the expected recapitalization schedule and assessing whether the planned injection will sufficiently rectify any weakening of Agrobank's capital position related to the contingent liability," the report reads.
Earlier, Moody's Investors Service has placed on review for downgrade the standalone E+ bank financial strength rating ("BFSR"), and the Ba3 long-term global local currency (GLC) and B2 long-term foreign currency deposit ratings of Agrobank.
The bank's Not-Prime short-term local and foreign currency deposit ratings remained unchanged.
Moody's review of the bank's ratings is largely based on the fact that the rating agency lacks access to factually verifiable financial information, as Agrobank has not yet reported its 2010 annual results under IFRS.
Agrobank was formed from Pakhtabank in March upon the decree of the Uzbek president. The main objectives of the bank are loans and complex banking services rendered to farms dealing with agricultural production, including cotton and grain processing enterprises. Agrobank is the legal successor of Pakhtabank for property, financial and other obligations.
Largest shareholders of Agrobank are Ministry of Finance of Uzbekistan (40% in charter capital) and Fund for Reconstruction and Development of Uzbekistan (19%).
The official exchange rate is 1765.53 soums to $1 on Nov. 1.