Fitch: State-owned Uzbek banks remain stable

Tashkent, Uzbekistan, Nov. 30

By Demir Azizov– Trend:

The state-owned Uzbek Industrial and Construction Bank Joint-Stock Commercial Bank (Uzpromstroybank; UPSB), Asaka Bank, OJSC Agrobank and Microcreditbank (MCB) remain stable, while their Long-Term Issuer Default Ratings (IDRs) depend on sovereign support, Fitch Ratings says in a new report.

According to the report, the state's ability to provide support is underpinned by Uzbekistan economy's resilience to the regional downturn and moderately reduced political risks following a smooth political transition.

The banks have reported stable asset quality. UPSB and Asaka had low nonperforming loans (NPL) of below 2 percent (fully covered by reserves) at end-2015, due to their focus on the export-oriented energy and auto industries and a high share of state-owned borrowers, with some larger exposures also being guaranteed by the state, the report said.

According to the report, Agrobank also has low NPLs, but its asset quality remains weakened by unreserved problematic receivables (8 percent of total assets).

MCB's NPL ratio was a high 10 percent at end-2015 but decreased at end-3Q16 to an adequate 2 percent as borrowers' financial performance recovered, the report said.

According to the report, capitalisation is strong at UPSB (Fitch Core Capital (FCC)/risk-weighted assets ratio of 16.8 percent at end-2015), moderate at Asaka (FCC/total assets of 10.3 percent) and MCB (FCC/ risk-weighted assets ratio of 13.6 percent, adjusted for unreserved NPLs), and weak at Agrobank (5.1 percent, adjusted for unreserved problematic receivables).

Agrobank received a UZS50bn equity injection from the government in 1H16, which should improve the bank's FCC ratio to a more adequate 6.3 percent at end-2016, the report said.

According to the report, internal capital generation is reasonable at UPSB and Asaka (ROAE of 10 percent and 12 percent, respectively), and weak at Agrobank (2 percent) and MCB (1 percent).

Liquidity is comfortable at UPSB and Asaka due to solid buffers (at end-1H16, liquid assets net of near-term repayments were about 30 percent and 36 percent of customer deposits at UPSB and Asaka, respectively), and somewhat tighter at Agrobank and MCB, as these two banks have high reliance on short-term inter-bank placements, the report said.

According to the report, the banks' funding is sourced mainly from customer deposits, and government and quasi-government entities. Depositor concentrations are high at UPSB and Asaka, while Agrobank's and MCB's deposits are more granular.

Fitch expects customer funding to demonstrate limited volatility - in light of steady previous growth - in spite of the deposits being mostly short-term.

The four banks' IDRs, Support Ratings and Support Rating Floors continue to be underpinned by potential support from the Uzbek authorities.

In Fitch's view, the authorities would have a high propensity to provide support, if needed, because of the state's majority ownership; the banks' systemic importance (to a lesser extent at MCB); tight supervision of their activities; and their policy roles.

Microcreditbank was established in May 2006 to render banking services to small businesses. As of early October 2016, the bank’s assets reached 1.382 trillion soums (official exchange rate on Nov. 30 is 3176.16 soums/$1) and the authorized capital - 250 billion soums. The bank’s largest shareholders are the Finance Ministry and the Central Bank.

The main direction of Uzpromstroybank is to provide banking products and services. As of early October, the bank’s assets reached 9.306 trillion soums, the authorized capital - 691.2 billion soums. The bank’s largest shareholders are the Ministry of Finance and the Fund for Reconstruction and Development of Uzbekistan.

Agrobank is the largest bank of Uzbekistan, with an extensive network of branches throughout the country. The largest shareholders of the bank are the Ministry of Finance and the Fund for Reconstruction and Development of Uzbekistan.

Asaka bank was established in 1996. The bank is mainly involved in lending to the automotive industry.

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