Baku, Azerbaijan, Apr. 30
By Fakhri Vakilov – Trend:
S&P Global Ratings has raised the long-term and short-term credit ratings of the issuer of Uzbek Turkiston PJSCB from CCC + / C to B- / B on April 29, the forecast of rating changes is “Stable”, Trend reports with reference to the agency.
This rating indicates that the placement of new deposits by organizations associated with the state, as well as a more balanced approach to cash management, determined the stability of the liquidity indicators of Turkiston Bank.
As a result, the ability of the bank to meet its financial obligations has become less dependent on business - financial and economic conditions.
The rating increase is also due to the fact that in 2018 Turkiston Bank received capital injections in the amount of $7 million and this support allows the bank to comply with the requirements of the regulator, to the minimum level of authorized capital since 2019, the agency reported.
In 2019, Turkiston Bank restored funding and liquidity indicators after their deterioration in 2018, which was associated with the withdrawal of a large deposits, as well as with financing the acquisition of real estate that together led to an outflow of funds in a total of about 25 percent of liabilities.
S&P Global Ratings also notes that during 2018 Turkiston Bank supported the growth of the loan portfolio at the expense of liquid assets. At the same time, the bank complied with the regulator’s requirements for liquidity ratios.
As of February 28, 2019, the bank’s dependence on volatile sources of short-term financing attracted on the open market decreased to 19 percent of the total resource base (compared to 34 percent as of November 22, 2018).
S&P Global Ratings notes that on the other hand, the indicator of stable financing improved to 99 percent (78 percent on November 22, 2018).
“These factors have led to a decrease in our concerns regarding the existing deficiencies in the practice of managing assets and liabilities of the bank. We also positively assess the fact that the bank’s management intends to keep the volume of liquid instruments at the level of at least 20 percent of assets in the future. At the same time, we still note the vulnerability of Turkiston’s business and financial risk profiles, and also believe that the recent improvement in the financial risk profile may be unstable,” the agency stresses.
“We, as before, consider the resource base of the bank insufficiently diversified and characterized by a high level of concentration. As of March 1, 2019, the top 20 contributors accounted for 61 percent of total customer accounts, which we rate as a high figure. The demand period for about a third of all deposits begins in 2019, and if it is not renewed, this can increase the vulnerability of the resource base,” the S & P Global Ratings reported.
Due to the capital injection by the shareholder, the risk-adjusted capital (RAC) increased from 7.8 percent at the end of 2017 to more than 10 percent as of December 31, 2018.
Under the baseline scenario, S&P expects that the RAC ratio of Turkiston Bank will be 7.5-9.2 percent in the next 12-18 months, taking into account the high lending growth rates and the expected capital injection of 20 billion soums.
Although as of December 31, 2018, the bank reported zero problem loans in its financial statements, S&P believes that credit growth, which is expected to exceed that of other comparable Uzbek banks, is associated with increased credit risks, despite the low base for growth.
This happens inasmuch as a fast-growing loan portfolio in the face of a potential change in the business cycle can lead to high costs for credit losses over time.
The agency stressed that the volume of transactions with related parties, formally reflected in the financial statements of the bank, is small.
The Stable outlook for Turkiston Bank reflects the fact that the bank has restored liquidity indicators and increased capital reserves, as well as expectations of S&P Global Ratings regarding the implementation of the rapid growth strategy in the next 12 months.
The agency underlined that a positive rating action seems unlikely in the next 12 months.
However, S&P will be able to raise the ratings of Turkiston Bank, if its RAC ratio is sustainably maintained at more than 10 percent, and raising the maturity of the loan portfolio does not lead to a more significant increase in credit losses.
($1-8417,15 soums on Apr. 30)
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