Fitch gives Uzbek-Korean UzKDB Bank 'B-' with Stable Outlook
Uzbekistan, Tashkent, Oct. 22 /Trend, D. Azizov /
Fitch Ratings has given Uzbek-Korean UzKDB Bank an issuer default rating (IDR) of 'B-', its Long-term local currency IDR a 'B' and its Viability Rating (VR) at 'b' with Outlook Stable, the agency's report said.
According to the report, short-term foreign and local currency were assigned a "B", the supporting level was "5".
As reported, the ratings were assigned to the bank in November 2012. The report said that the IDR UzKDB Bank in local currency reflects the potential support from its majority shareholder - Korea Development Bank (KDB, "AA-"/forecast "Stable").
Fitch considers UzKDB Bank a subsidiary with a "limited significance" for KDB given the small size and the still limited contribution of foreign subsidiaries in the results of KDB, the agency said.
According to Fitch, KDB, likely will continue to have a high enough willingness to support UzKDB Bank, which is its only financial asset in Central Asia, in connection with a common brand, a high level of operational and management integration, and good in the present political and economic relations between South Korea and Uzbekistan.
At the same time, the long-term IDR of the bank's local currency is limited to a "B" based on Fitch's view of risk in Uzbekistan. The long-term IDR in foreign currency, as well as the ratings of all other banks in Uzbekistan rated by Fitch, is constrained to a "B-" transfer risk and high risk of conversion in the country because of strict regulation of the foreign exchange market.
The support rating is constrained to a "5" as the restrictions on currency conversion may complicate the bank's ability to use support from the shareholder to serve the foreign currency liabilities, the report said.
Fitch also takes into account that UzKDB Bank's business focuses on trade financing, including letters of credit, guarantees and foreign exchange transactions for medium-sized and larger foreign and Uzbek companies.
As a result, cash and funds at the accounts in foreign banks with high ratings, state banks and the Uzbek Central Bank make up the bulk of UzKDB Bank's assets (95 percent of total assets as of early August 2013).
UzKDB Bank's merger with affiliate bank RBS NB Uzbekistan in the first quarter of 2013 did not greatly change its creditworthiness. The bank's loan portfolio is small - 3.2 percent of total assets at the same date, highly concentrated, but with zero rate of problem loans.
Significant cash balances ensure a comfortable liquidity cushion even taking into account the short-term and highly concentrated customer funding of the bank.
The liquid assets covered 76 percent of customer accounts as of late July 2013 and the bank had no borrowing on the capital markets.
Return on equity is good (22 percent) and supported by the low cost of 0.2 percent funding. The total capital adequacy ratio was 28.7 percent as of early August.
The long-term issuer default rating (IDR) in national currency may be increased or reduced in case of a corresponding change in Fitch's view about risks in Uzbekistan. Long-term issuer default rating in foreign currency and rating of support are unlikely to be raised if the restrictions on the conversion are not lifted.
The official exchange rate is 2.163.83 soums/$1 on Oct. 21.