Uzbekistan, Tashkent, June 5 / Trend D. Azizov /
Fitch Ratings has affirmed Uzbekistan-based Universal Bank's (UB) Long-Term local currency Issuer Default Rating (IDR) at 'CCC', the agency said today.
Initially, the ratings were assigned to "Universalbank" in June 2011 and confirmed by the agency in June 2012.
The rating actions are as follows:
Viability Rating: affirmed at 'ccc'
Support Rating: Affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'
According to Fitch, UB's IDRs reflect its modest and geographically concentrated franchise, high concentrations on both sides of the balance sheet, low operating efficiency, potential for related-party transactions and relatively short track record of operations.
The ratings also continue to take into account limitations in UB's credit profile following the revocation of the bank's licence on foreign currency operations in July 2012. As a result of this, UB experienced significant deposit outflow (around UZS8bn) in H212, which led to visible slowdown of the bank's growth (5% in 2012 versus 38% in 2011).
Liquidity risks were muted by end-1M13 as the bank had accumulated a solid liquidity buffer (equal to 31% of its customer accounts).
UB's asset quality metrics have worsened, reflecting the challenges of SME lending and some weaknesses in Uzbekistan's operating environment.
Non-performing loans (90+ days overdue) rose to 6.4% at end-2012 (from 2.8% at end-2011) and loans overdue from 30 to 90 days comprised an additional 15.3% of the portfolio. Increased credit impairment charges cut UB's return on average assets to a low 0.6% during 2012, while impairment reserves were still only 3.8% of loans at end-2012. However, unreserved credit risks were largely mitigated by the bank's solid reported capitalisation (32% regulatory capital ratio at end-2012).
Upward potential for UB's ratings is currently limited, although further development of the bank's franchise will be credit positive. Downward rating pressure could arise from resumed deposit outflow or further worsening of UB's asset quality if not offset by sufficient equity injections.
"Universalbank" was created in May 2002 on the basis of "Kokand" private open joint-stock commercial bank. It is one of the Uzbek smallest banks with assets worth $ 30.5 million at the end of April 2013. The main activity is to support small and private business, as well as housing construction in rural areas.
The head office is located in the city of Kokand (Ferghana region). The bank has a branch in Tashkent. In late 2010, the Uzbek regional private equity fund gained control over the bank. It intends to focus on the development of management processes and control systems.
The official exchange rate is 2.084.95 soums/$1 on June 5.