BAKU, Azerbaijan, Apr. 14
By Ilkin Seyfaddini – Trend:
Despite the impact of the coronavirus pandemic, Moody's analysts note in their last report that the outlook for Uzbekistan's banking system remains "stable," Trend reports citing the Moody's International Rating Agency.
The main factor is the high stability of the country's banking system to the consequences of the pandemic, compared to other CIS countries.
According to the agency's experts, the country has a reserve of material resources, given that a significant part of the economy and banks are owned by the state, therefore: the coronavirus crisis will not have a strong impact on the quality of banking assets. However, the growing volume of loans in state-owned banks will put pressure on liquidity reserve.
According to analysts of Moody's, Uzbekistan has factors that should have a positive impact on the stability of the country's banking system.
Firstly, the prevalence of loans to state-owned enterprises in the loan portfolio of the banking system and the fact that these borrowers can count on government support. This increases reliability of loans and reduces the risk of deterioration in the quality of banking assets.
Besides, the Uzbek soum remained relatively stable against the US dollar despite a significant fall in the national currencies of the republic's main trading partners - Russia, Kazakhstan and Turkey. This, in turn, limits the risk of inflation of foreign currency assets and ensures stability of capitalization.
"Moreover, with 52 percent reserves of GDP, the government of Uzbekistan has great potential to support the country's economy and banking system. However, unprecedented measures introduced by the government to combat the spread of coronavirus will have a negative impact on economic activity. Small and medium businesses, non-food retail and transport companies, tourism business and other service providers will suffer the most," said the report.
"In addition, net interest margins will decrease as financing costs increase in line with banks' efforts to prevent outflow of funds as a result of transferring deposits from national currency to foreign currency. This, along with high reserve contributions, will lead to lower profitability," said the report.
The average liquidity ratio as at 1 March 2020 was about 16 percent of total assets. As a result of increased lending in state-owned banks, liquidity reserves will be under pressure.
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