Tashkent, Uzbekistan, July 14
By Demir Azizov– Trend:
Fitch Ratings, the international rating agency, said in a report that it has affirmed the long-term foreign currency Issuer Default Ratings (IDRs) of Uzbek Industrial and Construction Bank (Uzpromstroybank; UPSB), Asaka Bank (Asaka), Agrobank OJSC and Microcreditbank (MCB) at 'B+', the outlooks are stable.
Short-term foreign currency and local currency IDRs of UPSB, Asaka, Agrobank and MCB have been affirmed at 'B', Support Rating Floors (SRFs) - at 'B+', support rating - at '4', according to the report.
Viability Ratings (VRs) of UPSB and Asaka have been affirmed at 'B', while the VRs of Agrobank and MCB – at 'B-', the report said.
The affirmation of the long-term foreign currency IDRs and SRFs of all four banks at 'B+' reflects Fitch’s view of a high propensity of the Uzbek authorities to support the banks, in case of need.
In Fitch’s view, the Uzbek state’s ability to provide support is currently solid, considering the moderate size of the banking sector relative to the Uzbek economy (loans/GDP ratio of around 37 percent at the end of 2016) and reasonably large foreign currency reserves.
Fitch believes that the Uzbek state is likely to retain majority stakes and operational control in the banks, and its propensity to support them should therefore remain strong.
The affirmation of UPSB’s and Asaka’s VRs at 'B' reflects the banks’ reasonable performance and asset quality metrics to date, according to the report.
Agrobank’s and MCB’s VRs at 'B-' reflect the banks’ weaker asset quality and profitability metrics, said the report.
At the same time, all four banks’ VRs continue to reflect Uzbekistan’s difficult operating environment, Fitch said.
“UPSB and Asaka reported low non-performing loans (NPLs) at the end of 2016 (below 1 percent and 2 percent respectively, fully covered by reserves),” the report said. “Agrobank also had low NPLs (2.5 percent at the end of 2016), but its asset quality remains weakened by unreserved problem receivables (7 percent of total assets). MCB’s NPL ratio was 13 percent at the end of 2016.”
“Loan books are more concentrated and dollarized in UPSB (78 percent) and Asaka (57 percent),” Fitch noted. “Agrobank’s and MCB’s loans are mostly in local currency and more granular by borrower, albeit concentrated on the agricultural industry.”
Profitability was moderate at UPSB and Asaka in 2016 (return on average equity (ROAE) of around 11 percent at both banks), and weak at Agrobank (2 percent) and MCB (negative 11 percent), according to the report.
Capitalization was moderate at UPSB (15 percent at the end of 2016), MCB (13 percent), modest at Asaka (11 percent) and weak at Agrobank (6 percent), the report said.
“The banks’ funding is mainly sourced from customer deposits and government and quasi-government entities,” Fitch noted. “Depositor concentrations were high at UPSB, Asaka and MCB, with 20 largest depositors accounting for 45 percent, 70 percent and 46 percent of total customer funding, respectively. Agrobank's deposits were more granular (15 percent). UPSB is the only bank with meaningful borrowings from foreign financial institutions (21 percent of liabilities).”
All four banks hold large enough foreign currency liquidity buffers to withstand a substantial reduction in foreign-currency-denominated customer funding, according to the report.
All four banks’ VRs could be downgraded as a result of deterioration in the banks’ asset quality if this is not fully offset by fresh equity injections, Fitch said.
Upgrades of the VRs could result from improvements in Uzbekistan’s operating environment and strengthening of the banks’ commercial franchises, said the report.