Fitch revises support rate for long-term IDRs of Uzbekistan’s four banks

Business Materials 15 December 2011 12:32 (UTC +04:00)
Fitch revises support rate for long-term IDRs of Uzbekistan’s four banks

Uzbekistan, Tashkent, Dec 15 /Trend D.Azizov /

International rating agency Fitch Ratings has revised the support rate for long-term issuer default rating (IDR) from No to B- for four large Uzbek banks under government control, Microcredit, Uzpromstroyb, Agrobank and Asaka bank, the agency said.

At the same time, the agency left the ratings of Agrobank under the supervision on Rating Watch with negative forecast and affirmed the IDRs of all other banks.

As reported in August this year, Fitch affirmed the foreign currency IDR at B-, the long-term IDR of banks in national currency at the level of B from stable forecast, stability rating at B, Individual at the level of D/E, support rating at the level of 5 and revised the support rate for long-term IDR of these banks from B- to No.

"Revision of the support rate of long-term IDR followed the improvement of the availability of macroeconomic and financial data, which allowed the agency to evaluate the creditworthiness of Uzbekistan," the report said.
Fitch noted that the ability of a sovereign issuer to provide support is explained with the strong external finances, a stable budget surplus and low public debt. Resources of a sovereign issuer are significant with regard to the size of the banking sector of Uzbekistan, whose obligations were estimated at 32 percent of the GDP at the end of September 2011 and consisted mainly of deposits of local customers and the allocation of funds by state agencies.

According to IMF forecast, the state foreign exchange reserves of Uzbekistan will reach $19.8 billion by the end of 2011, which is estimated to exceed external liabilities of the banking sector by 10 times.

Fitch also takes into account the structural weaknesses, low economic diversification and high political risks in Uzbekistan in assessing the ability of a sovereign issuer to support these banks.

Fitch believes that in most cases, authorities will have a high preparedness to support banks under state control, if such a need appears. This viewpoint is based on the integration of these banks and the state, which is reflected in the direct and indirect control over the government of majority stakes in banks, significant amounts of loans in accordance with government directives and government programs, as well as the high proportion of funding provided by government agencies or companies under state control.

The agency noted that support for foreign currency can be provided less timely in view of the existing regulation on the conversion, which hampers the support rate for long-term IDR at B-. Long-term IDR of banks in national currency B are supported by a higher reliability of potential support in the national currency.

Rating Watch status Negative on the Agrobank ratings continued to concern Fitch of the bank's financial position.

Fitch holds information that the potential allocation of 300-350 billion Uzbek soms to the bank is discussed at the governmental level.

The agency expects to decide on the Rating Watch status Negative after receiving more information about the contingent liability and the official announcement of plans to recapitalize.

Official exchange rate on Dec 15 is 1,787.54 per $1