S&P assesses trend for Uzbekistan's industry risk as stable

Tashkent, Uzbekistan, Jan. 19

By Demir Azizov– Trend:

S&P Global Ratings assesses the trend for Uzbekistan's industry risk as stable, S&P’s new report entitled "" said.

MAJOR FACTORS

Strength:

  • Uzbekistan has sustainable fiscal surpluses, supported by good economic growth prospects.
  • The banking sector's funding base is generally stable, essentially comprising customer deposits and development funds.

Weakness:

  • The economy bears very high credit risk, given the population's low wealth relative to peers, as well as relaxed underwriting standards and a vulnerable legal system.
  • Increased external pressure, resulting in a narrower current account surplus.
  • The institutional framework and governance are weak, and transparency is lacking.
  • Competition is distorted because of the government's tight control over the economy and the influence it exerts over the banking system.

S&P classifies the banking sector of the Republic of Uzbekistan in group '9' under Banking Industry Country Risk Assessment (BICRA). The peers for Uzbekistan are Russia, Kazakhstan, Belarus, Azerbaijan, Kenya, and Argentina, which have comparable levels of economic development and similar economic and banking sector structure.

The decline in GDP growth rates is likely to stop, with real growth rates of 6 percent-7 percent per annum expected in 2017-2018, the report said.

“While high nominal growth of credit represents a challenge in our view, we believe that it would generally be in line with the nominal growth of the economy and will not contribute to asset bubbles,” S&P said.

More advanced regulatory standards and the Central Bank's initiatives to improve governance and tighten capital requirements are offset by the level of government intervention in the banking system, S&P said.

“We consider that the dominance of state-related banks hampers competition,” the report said. “The funding profiles of Uzbek banks are largely stable, supported by the growth of government funding and corporate deposits. However, we see decreasing growth in retail deposits and deterioration in banks' capitalization ratios due to rapid asset growth.”

Currently, there are 27 commercial banks, including 3 state ones, 5 banks with the participation of foreign capital, 8 private banks and 11 joint-stock ones in the banking system of Uzbekistan.

The total assets of Uzbek commercial banks increased by 17.6 percent up to 76.7 trillion soums (official exchange rate on Jan. 19 is 3251.06 soums/$ 1), total loan portfolio of banks of the republic - by 18.7 percent up to 50.7 trillion soums, total capital – by 14.1 percent up to 8.9 trillion soums in January-September 2016 compared to 2015.

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