Fitch Ratings has affirmed Uzbekistan’s Universal Bank's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'B-' with a stable outlook. The bank's Viability Rating (VR) was affirmed at 'B-'.

The rating agency noted that Universal Bank's IDRs were driven by the bank's standalone credit strength, as captured by its 'b' VR. The VR factors in the bank's limited franchise, corporate governance risks (including high amounts of unreported related-party lending), and record of rapid growth. It also captures weaker financial metrics through the cycle compared with that of other Fitch-rated private banks in Uzbekistan.

“Uzbekistan's economy remains heavily dominated by the state despite recent market reforms and privatisation plans, resulting in weak governance and generally poor financial transparency. Sector risks stem from high dollarisation, significant exposure to long-term project finance and a reliance on external debt,” Fitch said.

Universal Bank is a small privately-owned bank, making up less than 1% of total assets in the highly concentrated banking sector of Uzbekistan. It operates primarily in the Fergana region, focusing on SME financing, complemented by unsecured retail lending.

The bank mostly provides short-term working-capital loans, with loan dollarisation (end-3Q23: 22%) well below the sector average (45%). Reported related-party loans were a low 4% of gross loans at end-2022 (end-2021: 11%), which may be understated, in Fitch's view. Additional risks come from high lending growth (3Q23: 37% annualised) given still weak underwriting standards, in the assessment of the rating agency.