Baku, Azerbaijan, Dec.20
By Leman Zeynalova – Trend:
S&P Global Ratings has affirmed its 'B/B' long- and short-term counterparty credit ratings on Uzbekistan’s Halk Bank.
“At the same time, we also affirmed our 'B-/C' long- and short-term counterparty credit ratings on Uzbekistan-based Turkiston Bank,” said the report released by S&P.
The outlook on both banks is stable.
“We believe that the change in economic risk will affect the capital adequacy of most Uzbek banks by no more than 70 basis points and will not lead to a revision of our view of their capital and earnings. Two banks, however, are more affected by this change: Halk Bank and Turkiston Bank,” said the report.
S&P believes that Halk Bank's financial profile will be resilient to increasing economic risks over the next 12-18 months.
“However, under our base-case scenario, we think that the bank will remain reliant on the government's recapitalization program to continue its operations while meeting all capital adequacy requirements (12.8 percent as of Nov. 1, 2016, versus the 11.5 percent regulatory minimum),” said the report.
S&P now projects its risk-adjusted capital (RAC) ratio for Halk Bank (before adjustments for concentration and diversification) will remain at 5-5.5 percent over the next two years.
“The stable outlook on Halk Bank reflects our view that its state ownership and ongoing government support will prove sufficient to preserve its creditworthiness over the next 12 months,” said the analysts.
S&P sees the potential for an upgrade of Halk Bank as limited over the next 12-18 months, since that would require substantial strengthening of its loss-absorption capacity through stronger bottom-line earnings.
“A positive rating action would also be contingent on more conservative capital management that ensured regulatory capital ratios stayed sustainably above the minimum requirement by more than 100 basis points,” said the report.
As for Turkiston Bank, S&P believes that it will be able to withstand the increasing pressure.
“While the deteriorating operating environment significantly impairs Turkiston Bank's capitalization under our definition (due to the rise in risk-weights under our RAC calculation), we view the bank as able to withstand mounting pressure and continue its business operations over the next 12-18 months,” said the report.
S&P analysts have revised their capital and earnings assessment for Turkiston Bank to adequate from strong and expect the RAC ratio to be 7.5-9 percent over the next 12-18 months.
“Despite our revised capital and earnings assessment, we affirmed the ratings, as we believe that Turkiston Bank's creditworthiness does not meet our criteria for assigning a 'CCC' rating,” said the report. “In particular, Turkiston Bank demonstrates clear signs of business recovery since the regulator authorized a foreign currency license in the first half of 2016.”
Turkiston Bank strengthened the ties with its customers in 2016 and managed to broaden and diversify its funding, according to S&P.
The bank managed to markedly improve the stability of its funding base, and, contrary to the beginning of the year, the majority of accounts are now primary, which tend to be less confidence-sensitive than secondary accounts, said the report.
S&P analysts said that the larger amount of clients with primary accounts has contributed to the greater amount of net fee and commission income, which is expected to have doubled in 2016 compared with 2015 results.
“The stable outlook on Turkiston Bank reflects our view that, over the next 12-18 months, the bank will be able to cope with the challenging operating environment and retain adequate capital and liquidity comparable with that of peers,” said the report.
---
Follow the author on Twitter: @Lyaman_Zeyn