S&P affirms ratings on Uzbekistan-based Davr-Bank

S&P affirms ratings on Uzbekistan-based Davr-Bank

Tashkent, Uzbekistan, Nov. 16

By Demir Azizov– Trend:

S&P Global Ratings affirmed its 'B-/C' long- and short-term counterparty credit ratings on Uzbekistan-based Davr-Bank. The outlook remains stable.

S&P expects that the bank will maintain its capitalization and asset quality near the current levels over the next 12-18 months. However, the agency notes that the fast lending growth may constrain asset quality and can be sustainable only if the bank continues to develop its IT and risk management systems.

S&P revised assessment of the bank's risk position to moderate from weak to reflect view that the bank has expanded its lending book while maintaining good asset quality.

As of Sept. 30, 2016, nonperforming loans (NPLs; loans overdue more than 90 days) accounted for 0.8 percent of the total loan book. The agency expects NPLs will likely increase but not exceed 1.5 percent of total loans in the next 12-18 months.

Davr-Bank's lending concentrations compare favorably with domestic peers. Exposure to the 20-largest borrowers accounted for about 30 percent of the total loan book (or 85 percent of common equity) as of Sept. 30, 2016.

At the same time, the agency revised assessment of capital and earnings of Davr-Bank to adequate from strong to reflect the bank's decreased capital adequacy due to rapid asset growth.

The agency’s forecast assumes that the bank will grow its gross customer loans by 35 percent-40 percent annually in 2016-2017. Furthermore, the agency incorporates in projections return on average equity of about 30 percent in 2016 and 20 percent-25 percent in 2017.

The stable outlook reflects view that Davr-Bank will maintain adequate capitalization and steady asset quality while expanding its lending activities over the next 12-18 months. The outlook also reflects expectation that the bank's liquidity position will remain adequate over the same period.

The agency could lower the ratings if Davr-Bank's capitalization weakened faster. Another negative rating action trigger could be aggressive lending growth that is not supported by the development of adequate IT or risk management systems. This could cripple asset quality.

The private joint-stock commercial Davr Bank was established in Tashkent in 2001. The bank's assets amounted to 240 billion soums (official exchange rate on Nov. 16 is 3138.95 soums/$1), the authorized capital - 30 billion soums, the total capital - 45.5 billion soums as of late 2015. Currently, the bank has seven branches.

The minimum authorized capital of private banks must reach at least five million euros in Uzbekistan. Currently, there are eight private banks in the banking system of Uzbekistan.

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