Standard & Poor's confirms Uzbek Ipoteka Bank 'B+/B' Ratings; Outlook Stable

Uzbekistan, Tashkent, May 30 / Trend D. Azizov /

Standard & Poor's Ratings Services affirmed its 'B+' long-term and 'B' short-term counterparty credit ratings on Uzbekistan-based JSCM Ipoteka Bank. The outlook is stable, Standard & Poor's said today.

According to the report, the rating was assigned to the bank in May 2012.

Ipoteka Bank demonstrated aggressive asset growth in 2012. It expanded its assets by 55%, well beyond the level that the agency previously forecast and the Uzbek banking industry average growth of 30% in 2012. Ipoteka Bank's Standard & Poor's risk-adjusted capital (RAC) ratio (before adjustments for concentrations) fell to 5.1% at year-end 2012 from 6.3% at year-end 2011.

"The growth was mainly fueled by the addition of a large new client, a government-related gas extraction and export company, which has placed large deposits with the bank," the statement said. "Moreover, the government increased funding of the country's largest state-owned metal producer, which is channeled through Ipoteka Bank."

Despite the bank's higher-than-average interest margins compared with other state-controlled Uzbek banks and good profitability (return on equity reached a high 23.4% in 2012), its internal earnings generation lags behind its rapid asset growth.

The bank plans an Uzbek sum (UZS15) billion new share issuance for 2013 to existing shareholders. The agency believes this capital increase will not significantly improve the bank's projected capital ratios.

The agency projects that the RAC ratio will stay in the range of 5.0%-5.5% over the next 12-18 months. Therefore, the agency has revised assessment of the bank's capital and earnings to "moderate" from "adequate," as our criteria define the terms.

Ipoteka Bank successfully recovered a number of construction-related problem loans, which resulted in the ratio of nonperforming loans to total loans decreasing to 1.4% at year-end 2012 from 3.3% at year-end 2011, the message said.

The bank has decreased its U.S. dollar open currency position to less than 20% as of Dec. 31, 2012, from 88% of total equity at year-end 2011.

Ipoteka Bank's single-name concentrations are very high by international standards, but in line with those of other state-owned Uzbek banks. The bank's top 20 borrowers accounted for 60% of total loans or almost 470% of total equity.

The bank's currently very high lending concentrations to decrease in the medium term, as the bank grows its retail and small and midsize enterprises (SME) portfolio.

The rating reflects the agency's view of Ipoteka Bank's "important" role in the domestic economy, given its public policy role financing residential mortgages in urban areas, its role as the main servicer of Uzbekistan's Treasury and utility companies, and its role as a finance provider for state-related entities.

S&P is unlikely to raise the ratings on the bank unless the agency revises upward our assessment of its stand-alone credit profile (SACP), and the creditworthiness of the Republic of Uzbekistan (not rated) improves.

At the same time, the agency could lower the ratings if capitalization continues to deteriorate, with the projected RAC ratio before adjustments falling to less than 3%.

Ipoteka-bank was established in April 2005 through the merger of Uzzhilsberbank and Zamin.
The bank specializes in the lending long-term individual housing construction and financing the enterprises producing the construction materials.

The bank has 15,200 shareholders - legal and physical entities, one of the main is the Uzbek Ministry of Finance (27.8 percent).

The official exchange rate is 2081,59 soums/$1 on May 30.

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