Uzbekistan, Tashkent, Feb.2 / Trend D.Azizov /
Fitch Ratings has left under the supervision on Rating Watch Negative long-term issuer default ratings (IDR) of Uzbek Agrobank in foreign and local currencies, which are at a level "B-" and "B" respectively, and downgraded the rating of sustainability from the level of "b-" to "f", the agency said on Thursday.
The list with negative outlook includes also the short-term IDR in national and foreign currencies, which are at a level "B", Support Rating Floor "B-", support rating is affirmed at "5".
It was reported earlier that Fitch Ratings placed Agrobank's ratings on Rating Watch Negative (RWN) in Nov, 2011.
"The downgrade follows the publication of the financial statements of Agrobank under IFRS for the 2010 (and adjustments to accounts for 2009), where commitments have been revealed, which were not previously reported, amounting to about 250 billion Uzbek soums (equivalent to 140 per cent equity under IFRS ) related to the fraud of the bank's employees, "- the statement said.
"f" rating reflects Fitch's view over the fact that the bank is experiencing serious financial difficulties and it needs to support by the capital to restore financial stability.
Mentioned commitments that were not previously disclosed in the bank's statement, have been recognized in connection with the misappropriation of customers funds. Agrobank Management believes that the reimbursement of these funds is possible and took into account the requirements for the former employees of the bank.
However, the auditors of Agrobank made a reservation to its statement, saying that under IFRS, these assets should not be recognized. If such assets were not recognized, the bank's capital would amount according to national standards' reporting to 73 billion sums at the end of 2010 and 11 billion sums at the end of 2011.
According to Fitch, recoverability of these funds is uncertain due to the fact that the bank was able to identify and to levy only a small amount of 0,8 billion Uzbek sums of misappropriated funds.
At the same time, according to Fitch, the favorable moment at the present time is that the bank enjoys the regulatory concessions, since the country's central bank took no action with respect to financial statements on IFRS with the reservation of auditors and did not require the recognition of bank losses.
Moreover, the regulator gave permission to non-compliance with regulatory requirements for capital adequacy if the bank recognizes the impairment of such assets. The shareholders of Agrobank approved 110 billion soum allocation, which is expected in the first quarter of 2012. Another capital increase may be discussed at the annual meeting of shareholders in April-May 2012.
Fitch notes that a favorable factor for the bank's liquidity was stable access to the local interbank market, in which state-owned banks dominated in 2011.
At the same time the liquidity position of Agrobank was under significant pressure with the available liquid assets, including cash and net short-term interbank assets at the end of 2011, and covering only eight percent of customer deposits. Additional needs in liquidity equal to approximately half of the available liquid assets, may arise in case of a potential acceleration of payments on foreign funding.
At the same time, as far as Fitch knows, foreign lenders have not taken steps to speed up payments on the debt, partly because the bulk of the loans have guarantees from the state.
"If a bank's capital will be restored as a result of capital contributions and / or compensation of the problem of accounts receivable, the IDR and the levels of support for long-term IDR is likely to be confirmed at the current levels. At the same time in the event of prolonged delay with the recapitalization of the bank or, if the liquidity position of Bank will not allow it to serve all obligations to creditors, ratings could be downgraded," Fitch said
In Jan., 2012 Agrobank announced it would begin on Feb. 6 placing an additional issue of 113.799 billion soums to increase its authorized capital by 1.9 times to 240 billion soums.
Moody's review of the bank's ratings is largely based on the fact that the rating agency lacked access to factually verifiable financial information, as Agrobank has not yet reported its 2010 annual results under IFRS.
The agency downgraded rates of Agrobank in Dec, 2011.
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.
Agrobank is among the five largest banks in the republic. 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.
The largest shareholders of Agrobank are the Ministry of Finance of Uzbekistan (40% in authorized capital) and Fund for Reconstruction and Development of Uzbekistan (19%).
The bank has 185 branches, 468 mini-banks, 189 special cash desks, 274 currency exchange offices in all of the country's regions. The bank serves nearly 270,000 legal and over a million physical entities.