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Fitch affirms three major Uzbek banks’ ratings

Business Materials 15 August 2012 11:38 (UTC +04:00)

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

Fitch Ratings has affirmed Uzbekistan-based Asaka Bank, Uzpromstroybank (UPSB) and Microcreditbank's (MCB) Long-term foreign currency Issuer Default Ratings (IDRs) at 'B-' and Long-term local currency IDRs at 'B', the agency said.

The ratings are affirmed with stable outlook.

The rating actions are as follows:

Asaka Bank and UPSB: Long-term foreign currency IDR: affirmed at 'B-' with a Stable Outlook; Long-term local currency IDR: affirmed at 'B' with a Stable Outlook; Short-term foreign and local currency IDRs: affirmed at 'B'
VR: affirmed at 'b-'; Support Rating: affirmed '5'; SRF: affirmed at 'B-'

Fitch has not assigned a VR to MCB due to its limited commercial operations, and high reliance on government funding.

As it was reported, in December 2011 Fitch Ratings has upgraded Uzbekistan-based Microcreditbank's (MCB) Long-term foreign-currency Issuer Default Rating (IDR) to 'B' from ' B-'. 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 Uzbekistan government has been regularly injecting fresh equity into the banks and it is likely to continue providing support in future, in view of its direct and indirect control of majority stakes in the banks.

According to Fitch, "the sovereign's ability to provide assistance remains solid at present, considering its strong external and fiscal positions and the relatively small size of the banking sector, whose liabilities were equal to an estimated 30% of GDP at end-2011 and consisted mainly of deposits of domestic customers and placements by government bodies".

According to the IMF, Uzbekistan's sovereign foreign currency reserves reached USD19.8bn at end-2011, which exceeds external banking liabilities by an estimated 10x.

"However, the sovereign credit profile remains undermined by the economy's structural weaknesses, including the difficult business environment and poor diversification," the Agency believes.

At the same time, the agency considers that support in foreign currency may be provided in a less timely manner in light of existing convertibility regulations, which constrains the Support Rating Floors (SRF) of all banks at 'B-' and their Support Ratings at '5'. An upgrade of the SRFs, Support Ratings and foreign-currency IDRs would require liberalisation in foreign currency regulations.

Asaka and UPSB's 'b-' Viability Ratings (VRs) reflect their weak profitability as a result of the mostly directed nature of their operations, significant concentrations of credit risks, narrow funding bases. Liquidity is supported by established local interbank relationships in a largely state-dominated domestic banking sector. In the absence of external shocks, the banks' reported asset quality remains reasonable; however, this is largely dependent on undisrupted sovereign assistance to the economy.

Downward pressure on the VRs could arise from a deterioration in the banks'
asset quality, particularly as a result of market stress, realisation of operational risks or continuing build-up of non-core assets on their balance sheets, if this was not offset by equity injections.

Bank Asaka was established in 1996. The main focus of its activities is lending to the automotive industry. The founders and major shareholders are the Ministry of Finance - 59.87 per cent of shares, the Fund for Reconstruction and Development of Uzbekistan - 14.97 per cent and joint-stock company Uzavtosanoat (automotive industry) - 14.99 per cent.

"Uzpromstroybank" is the oldest bank in Uzbekistan. It was established in 1922 and re-registered in 1991. The main activity is to lend the enterprises of the strategic sectors of industry.

Microcreditbank was created by a presidential decree in May 2006 on the basis of joint-stock commercial bank Tadbirkor (Entrepreneur), to deliver a broad range of banking and consulting services to small enterprises, private entrepreneurs, and farmers.

The official exchange rate is 1913.35 sums/$1 on Aug.15.

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