BAKU, Azerbaijan, Nov. 15
By Fakhri Vakilov-Trend:
Standard and Poor’s (S&P) Global Ratings raised its long-term issuer credit rating on Uzbekistan-based Orient Finans Bank (OFB) to 'B' from 'B-' and affirmed the 'B' short-term rating, Trend reports citing S&P.
The outlook remains positive, the agency reports.
S&P states that the positive outlook reflects that the agency could further upgrade the bank in the next 12-18 months if it maintains its funding metrics and prudent capital management, growth does not lead to a significant increase in credit losses, and there are no large one-off increases in exposures.
The upgrade reflects OFB's increased capital buffer, which is above our previous assumptions. This is an effect of the bank’s solid financial performance, with strong recurring profits, no dividend distributions, and moderate lending growth over the past two years.
S&P estimates that the bank’s risk-adjusted capital (RAC) ratio will have increased to about 13.4 percent by year-end 2019 (from 10.6 percent as of year-end 2018), and will be 13.0 percent -13.2 percent over the next 12-18 months.
It is expected that OFB's earnings capacity will remain stable, with a return on average equity of 23 percent -27 percent, which will support the bank’s current capitalization levels over the next 18 months.
S&P also expects that the bank’s local capital adequacy ratio will remain above 16 percent over the next 18 months, compared with the 13 percent regulatory minimum.
S&P could upgrade the bank if it maintains prudent capital management, growth in its lending activities does not lead to a significant increase in credit losses, and the agency do not observe a return to an opportunistic risk appetite, which would distort the bank’s concentrations and performance.
"In addition, we would expect no deterioration in the bank's funding and liquidity position, with no increase in the share of demand deposits in the total funding structure,” the agency reported.
S&P could revise the outlook to stable if it saw asset-quality deterioration beyond market-average levels and significantly above current projections, which would affect the bank's business stability or capitalization.
A significant decline in capitalization, either via higher than expected growth in exposures or large dividend distributions, could also lead to an outlook revision or even a downgrade. Furthermore, a material weakness in the funding profile or liquidity position could lead to a negative rating action, read the message.
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