S&P Global Ratings raises ratings of two Uzbek banks to 'BB-'

S&P Global Ratings raises ratings of two Uzbek banks to 'BB-'

Baku, Azerbaijan, Dec. 26

By Fikret Dolukhanov - Trend:

S&P Global Ratings raised its long-term ratings on National Bank For Foreign Economic Activity of the Republic of Uzbekistan (NBU) and KDB Bank Uzbekistan JSC to 'BB-' from 'B+' and affirmed its 'B' short-term ratings on the two banks. The outlooks are stable.

The rating actions follow 'BB-/B' ratings assignment to the Republic of Uzbekistan on Dec. 21, 2018. S&P's view of the sovereign's creditworthiness previously constrained the ratings on the two banks at 'B+'.

For NBU, this is because S&P considers the creditworthiness of state-owned banks to be correlated to that of the sovereign. S&P's ratings on KDB are also capped by rating on Uzbekistan, despite the bank's ownership by, and strategic importance to, a higher-rated foreign entity.

S&P's ratings on Uzbekistan are supported by the government's strong fiscal and external positions. These strengths predominately arise from the government's large asset position, which stems from the past policy of transferring part of the revenues from commodity sales to the Uzbekistan Fund for Reconstruction and Development (UFRD). At the same time, S&P's ratings are constrained by Uzbekistan's low economic wealth, as measured by GDP per capita. In S&P's view, future policy responses may be difficult to predict, given the highly centralized decision-making process and that accountability and checks and balances between institutions are relatively underdeveloped. S&P's ratings are also constrained by low monetary policy flexibility.

S&P's ratings on NBU reflect the bank's diversified business model, with leading market positions in state development projects and other nongovernment segments. The bank's relatively modest core profitability by domestic standards is constrained by the limited net interest income, as NBU acts as the state's agent in financing targeted industries at capped margins set by government decrees. While the bank has a proven track record of maintaining stable profitability over the cycle, S&P believes that earnings capacity is still lagging behind expected asset growth. Finally, S&P considers the bank's funding diversification to be better than local peers' and liquidity as adequate. S&P's assessment of NBU's risk profile balances marked ongoing support from the sovereign (direct and indirect via state guarantees) with high concentrations, a significant amount of foreign currency lending, and a fast expansion strategy.

S&P assess the bank's stand-alone credit profile at 'bb-'. S&P considers the bank has high systemic importance within the banking sector of Uzbekistan and is a government-related entity (GRE) with a very high likelihood of extraordinary government support. However, S&P's ratings do not reflect this in the form of an uplift, as the stand-alone credit profile (SACP) is at the same level as the sovereign rating.

The stable outlook on NBU reflects S&P's view of the balance between expected continued state support over the next 12 months and high economic and industry risks for banks operating in Uzbekistan.

S&P considers state-owned banks' creditworthiness to be closely linked to that of Uzbekistan. Therefore, S&P is unlikely to raise the ratings on NBU over the next 12 months unless our view of the sovereign's creditworthiness improves. S&P views an upgrade driven by improvements in bank-specific factors as unlikely over the next year.

S&P could downgrade NBU over the next 12 months to reflect heightened economic and industry risk, for example caused by a deterioration of the sovereign's creditworthiness. A downgrade linked to bank-specific factors is remote, as this would require both material weakening of NBU's currently adequate asset quality and deterioration of capitalization (with projected risk-adjusted capital [RAC] ratio declining to below 3 percent).

S&P's ratings on KDB Uzbekistan reflect its small lending franchise, stable depositor base, high liquidity cushion, and funding metrics that S&P sees as much stronger than those of peers. S&P also incorporates in the ratings the bank's strategic intention to rapidly expand its lending business over the next two years. Following the assignment of ratings to Uzbekistan, S&P views the capitalization of KDB as a positive rating attribute, owing to high amount of placements with the central bank of Uzbekistan (about 20-25 percent of assets). Previously, in the absence of a sovereign credit rating on Uzbekistan, S&P applied more conservative risk weights in calculating of the RAC ratio for KDB. S&P expects that the bank will be able to maintain a solid capital buffer, with a RAC ratio of close to 10.8 percent at year-end 2019. S&P have therefore revised upward the SACP on the bank to 'bb-' from 'b+'.

S&P considers KDB Uzbekistan a strategically important subsidiary of Korea Development Bank (AA/Stable/A-1+). There is a high likelihood that the parent would provide extraordinary support to KDB in the form of capital or liquidity if needed. S&P may rate strategically important subsidiaries up to three notches above their SACP. However, S&P caps the ratings on KDB at the level of the foreign currency long-term sovereign rating on Uzbekistan.

The stable outlook on KDB largely mirrors the stable outlook on Uzbekistan.

S&P could raise the long-term rating on KDB or revise the outlook to positive over the next 12 months if S&P took a similar rating action on the sovereign, assuming that there is no change in the commitment of the parent, Korea Development Bank, to provide extraordinary support to its Uzbek subsidiary if needed.

S&P could take a negative rating action if S&P took a similar rating action on the sovereign. Although unlikely, a significant deterioration of the bank's SACP and changes in parent's commitment to provide extraordinary support could also prompt a negative rating action.


Follow the author on Twitter: @FDolukhanov

Personnel changes at AccessBank
Personnel changes at AccessBank
EY Azerbaijan invites small and medium sized companies to take part in ‘EY Entrepreneur Of The Year™’ 2020-2021 competition
EY Azerbaijan invites small and medium sized companies to take part in ‘EY Entrepreneur Of The Year™’ 2020-2021 competition
"Together we are POWER": ENGINET supports injured children in Ganja city (FOTO)
"Together we are POWER": ENGINET supports injured children in Ganja city (FOTO)
Loading Bars
Azerbaijani Armed Forces units enter Kalbajar (PHOTO/VIDEO)
Revenue of Kazakhstan's KazMunayGas plummet year-on-year
Personnel changes at AccessBank
Kalbajar returned to its true owners - Turkish government
Assembly of new-generation combines starts in Azerbaijan
Azerbaijani currency rates for Nov. 25
Iranian currency rates for November 25
US welcomes observance of agreements on settlement in Karabakh - Pentagon
Kalbajar district's return to Azerbaijan - new triumph of historical justice, says expert
As winter approaches, Egypt braces for second coronavirus wave
Turkmenistan, Malaysia aim to boost co-op in oil and gas sector
Uzbekistan reveals its COVID-19 data for November 25
President Ilham Aliyev allocates AZN 5m for design and construction of Barda-Aghdam railway line
Iranian Energy Exchange announces products to be on sale November 25
Fitch withdraws ratings of Yerevan due to incorrect information
Iran to expand economic relations with Qatar
Iran announces readiness to increase percentage of enrichment
Davit Zalkaliani congratulates Gerry Connolly on election as President of NATO PA
First video footage from liberated Kalbajar region (PHOTO/VIDEO)
720 new coronavirus cases in Kazakhstan over last 24 hrs
Energy, transport sectors – main area of Romanian interest in Turkmenistan
1 dead, 2 missing after workshop collapse in SW China city
Import of Turkish clothes by Uzbekistan drops sharply
75 more coronavirus patients die in Moscow in past day — crisis center
Number of COVID-2019 cases across globe up by over 463,000 in past day — WHO
Israel reports 798 new COVID-19 cases, 330,796 in total
Units of the Azerbaijan Army enter Kalbajar region
Pennsylvania certifies election results for Biden
Iran, Qatar sign MoU to cooperate on economy
Kalbajar region of Azerbaijan being liberated from Armenian occupation today
China, Japan eye closer cooperation amid COVID-19 pandemic
Construction of the TAPI gas pipeline in Afghanistan territory will continue next year
ICESCO SecGen sends letter to President Aliyev
Azerbaijani, Russian presidents hold phone talks
Urban transformation back on track for ‘abandoned’ Istanbul neighborhood
“Scorched earth” strategy of Armenians leaving Azerbaijani Kalbajar region did not escape EC attention - report
President Rouhani: Iran to be able to mass produce coronavirus vaccine soon
Turkmenistan is convinced of the need to attract political-diplomatic tools to achieve peace and prosperity in Afghanistan
Georgian banks see increase in interest income
Azerbaijan’s revenues from export of hazelnuts down
Azerbaijan’s import of plastics and plastic products drops
Turkmenistan will continue to cooperate with Afghanistan on security issues
Nursing homes will be first to get COVID-19 vaccine in Spain
Troops from Azerbaijan's Nakhchivan who took part in Karabakh conflict, return home (PHOTO)
Speaker of Azerbaijani parliament takes part in int’l conference initiated by Turkish parliament, PACE (PHOTO)
Any result that acceptable for Azerbaijan - acceptable for Turkey too, FM says
Volume of paid services in Azerbaijan’s Nakhchivan Autonomous Republic down
Azerbaijan shows aerial footage of Shusha city (VIDEO)
Kazakhstan eyeing to develop information system for accounting of oil and gas condensate
Anglo Asian Mining's production of precious metals in Azerbaijan may decrease
Uzbekistan eyes to increase share of renewable energy sources by 2030
Airbus CEO says industry might need until 2025 to reach pre-crisis levels
Parliament's plan to increase subsides - costly for Iranian government
Ukrainian companies enter Uzbek commodity exchange
National Bank of Georgia reveals data on losses of commercial banks
Import of sugar and confectionery by Azerbaijan down
Demand for Turkish electrical goods on Kazakh market grows in 10M2020
Azerbaijan confirms 1,259 more COVID-19 recoveries
Bahar Azadi gold coin price again falling in Iran
Azerbaijan discloses data on destroyed houses in liberated Fuzuli district
Baku Media Center prepares video covering Armenian vandalism on occupied territories of Azerbaijan (VIDEO)
Russian president hopes for participation of int’l organizations in Karabakh conflict settlement
Power abuse by major states prevents resolving conflicts - Russian FM
Uzbek-Korean JV to buy electrical products via tender
Turkmenistan offers business opportunities for Switzerland in number of fields
North-South Corridor - on Iran's agenda - Minister of Roads and Urban Development of Iran
Turkish, Russian military personnel to jointly patrol in Nagorno-Karabakh - Turkish MoD
Azerbaijan shows footage from Abdal, Gulabli villages of Aghdam district (VIDEO)
Egyptian air operator enters Uzbek market
Uzbekistan to introduce changes to electricity payments in 2021
Iran assigns more funds to complete unfinished projects
Turkmenistan's Turkmennebit opens tender for purchase of equipment
Azerbaijan’s startup sector expects big investments
Iran's ten-month import of steel from Turkey drops
Tesla set to breach $500 billion in market value
State budget for 2021-2023 approved in Kazakhstan following amendments introduction
Kazakhstan's bitumen output exceeds 2020 plan as maintenance works held country-wide
Port of Baku reveals total 10M2020 cargo shipments
New railway vehicles put into operation in Iran
Iran`s Zarif to visit Moscow and Baku despite postponement
Kazakhstan looking to double renewables share in electricity production
Iran continues to cut reliance on oil revenue
Volume of container transshipment between Kazakh, Azerbaijani ports almost triples
LUKOIL refusing plans to construct giant petrochemical complexes
Iran, Qatar sign an extensive Memorandum of Understanding to facilitate cooperation
Switzerland names main trade statistics with Turkmenistan
Dry cargo transshipments through Baku port grow in 10M2020
LUKOIL says reducing oil exports to Europe is inevitable
Georgia receives new buses of modern standards
Georgian hazelnuts exports up
Georgia sees increase in export of tangerines
Ryanair wants to be 'at front of queue' for new 737 MAX order
Azercell’s Mobile Eye Clinic joins campaign for IDPs initiated by the UN (PHOTO)
El Al to launch Tel Aviv - Dubai flights next month
Kazakhstan’s third-quarter economic performance benefits from recovery of oil prices
Azerbaijan informs UNESCO, ISESCO about results of initial monitorings on liberated areas
Turkmenistan’s private sector participates in dev't of poultry farming
Iran discloses plan on creation of new jobs in Yazd Province
Destroyed Armenian positions firing at Azerbaijani army during recent hostilities shown (PHOTOS)
Central Bank of Azerbaijan discloses data from foreign exchange auction
All news