Uzbekistan, Tashkent, Nov. 4 / Trend D. Azizov /
Standard & Poor's Ratings Services assigned its 'CCC' long-term and 'C' short-term counterparty credit ratings to the Uzbekistan-based Amirbank. The outlook is positive, S&P said on Friday.
The ratings reflect Amirbank's weak business position and marginal market share. They also reflect its intrinsic vulnerability as a small financial institution in a risky operating environment, large balance-sheet concentrations, limited diversity and unseasoned loan portfolio. Amirbank's financial performance is weak and constrained by the absence of a foreign exchange license and high operational expenses, the message said.
Amirbank which is owned by 18 individuals and eight legal organisations has strong capitalisation, although its capital in absolute terms is small. This makes it vulnerable to fluctuations in its operating performance and market conditions.
Founded in October 2008, the bank is a small regional one based in the city of Samarkand. It held the total assets of Uzbek to the sum of 20.6 billion (about $11 million) as of Sept. 30, 2011.
The bank's main short-term strategic priority is to obtain a foreign exchange license which would allow it to expand its customer base by attracting deposits and granting loans denominated in foreign currency. It is understood this could happen by the end of 2011 or early 2012.
S&P analysts feel Amirbank's asset quality is vulnerable given its unseasoned loan portfolio, expansionary strategy and weak customer franchise, as well as tough competition for borrowers with good credit quality.
The bank's current very low level of nonperforming loans is not sustainable, in their view. Because the bank is at an early stage in its development and has a narrow customer base, it suffers from high concentrations, the 20 leading borrowers accounted for 88 per cent of the loan portfolio as of Sept. 30, 2011.
Profitability is currently boosted by high net interest margins, largely due to a high share of no-interest-paying equity. However, due to a high cost structure and lack of economies of scale, the bank's earnings are low with a negligible return on equity of 0.05 per cent.
The positive outlook reflects the view that Amirbank's business position will gradually improve as soon as the bank receives a foreign exchange license, as is expected. This would help to expand its franchise and client base.