Azerbaijan, Baku, Feb. 25 /Trend/
Fitch Ratings has affirmed Uzbekistan-based POJSEB Trustbank's (TB) Long-term Issuer Default Ratings (IDRs) at 'B-' with Stable Outlooks, the agency's report said on Monday.
TB's Long-term IDRs are driven by its Viability Rating. The affirmation of the IDRs reflects Fitch's current assessment of some weaknesses in the Uzbekistan operating environment, foreign currency regulations in particular, TB's limited franchise and high reliance on related parties' funding, and its currently rapid loan growth that translates into largely unseasoned nature of its loan book (CAGR for 2011-2012 was 35.1%).
TB's revenue-generating capacity and funding continue to significantly rely on the funds of Uzbek Commodities Exchange (UCE) and other related parties. The latter accounted for 68% of the total non-equity funding at end-9M12 (end-H111: 51%) and was highly concentrated by name, requiring TB to maintain a solid liquidity cushion. At end-2012 TB's total available liquidity net of total potential cash uses comfortably covered 82% of its customer accounts.
TB's capital has been supported by its sound internal capital generation of 31% for 2012 (to a significant extent from fees earned on settlements and trade finance operations) and consistent fresh equity injections (UZS4bn in 2012 and the similarly moderate injection planned for 2013).
At end-1M13 TB reported the total regulatory capital adequacy ratio (CAR) at 20.6%, which allowed the bank to reserve up to 28% of its total loan book without breaching the regulatory minimum of 10%. However, the bank's capitalisation level should be considered in the context of its concentrated credit and significant interbank exposures (equivalent to 2.3x of the bank's equity at end-2012, most of them were within the local banks).
TB's foreign currency IDR also continues to be capped by limitations of foreign exchange regulation in Uzbekistan, which constraint the bank's ability to service foreign currency obligations, including but not limited to documentary business in foreign currencies. The volume of foreign currency letters of credit and guarantees without appropriate collateral was reported at 38% of the bank's equity at end-Q312, representing a moderate conversion risk for the bank.
An upgrade is not currently expected, although TB's credit profile would benefit from diversification of its funding base and moderation in growth, while maintaining acceptable asset quality and profitability. An upgrade of the Long-term foreign currency IDR would additionally require a liberalisation of foreign exchange regulations.
The bank's IDR could be downgraded in the event of sudden withdrawal of UCE's operations from the bank, which would adversely affect its liquidity, operating efficiency and profitability. However, this is not Fitch's current expectation, as reflected in the Stable Outlook on TB's Long-Term IDR. Significant increase in risk appetite or marked deterioration of the credit quality could also result in a downgrade of the VR.
TB's SRF of 'No Floor' and its '5' Support Rating reflect its relatively limited scale of operations rendering extraordinary support from Uzbek authorities unlikely. The ability of TB's shareholder to provide support cannot be reliably assessed. Fitch does not expect any revision of TB's SRF or Support Rating in the foreseeable future.