Fitch says Uzbek state-owned banks remain stable

By bne IntelliNews November 29, 2016

State-owned Uzbek banks remain stable, while their Long-Term Issuer Default Ratings (IDRs) depend on sovereign support, Fitch said a report released on November 28.

Fitch believes that the government's ability to provide support to banks is backed by Uzbek economy's resilience to the regional downturn and moderately reduced political risks following a smooth political transition. Yet, the Uzbek economy remains vulnerable to external shocks, as the country’s exports are commodities-driven and concentrated on only a handful of countries, while external finances are heavily remittance-dependent, the ratings agency said.

In the agency’s view, the authorities would have a high propensity to provide support to the banks, when needed, due to the banks' systemic importance, the state's majority ownership as well as tight supervision of the bank’s activities and their policy roles.

Most banks have reported stable asset quality. UPSB and Asaka had low NPLs of below 2% fully covered by reserves at the end of 2015. Agrobank also has low NPLs but its asset quality is weak due to unreserved problematic receivables “which resulted from an alleged fraud case in 2010 and significant non-core/foreclosed assets”. MCB's NPL ratio was a high 10% at end-2015 but fell at the end of the third quarter of 2016 to 2%.

Capitalisation is strong at UPSB, moderate at Asaka and MCB and weak at Agrobank, which received a UZS50bn equity injection equal to 2% of end-2015 risk-weighted assets (RWAs) from the government in the first half of 2016. According to Fitch, this should improve the bank's FCC ratio to 6.3% at end-2016 if expected lending growth will be maintained at expected 13% during the year.

Internal capital generation is reasonable at UPSB (10%) and Asaka (12%), and weak at Agrobank (2%) and MCB (1%), which reflects the mainly state-directed nature of banks' operations and rather weak operating efficiency.

Liquidity is comfortable at UPSB and Asaka due to solid buffers (at end-1H16, liquid assets net of near-term repayments were about 30% and 36% of customer deposits at UPSB and Asaka, respectively), and somewhat tighter at Agrobank and MCB, as these two banks have high reliance on short-term inter-bank placements.

UPSB is the only bank with meaningful borrowings from international financial institutions, which stand at 19% of liabilities, but the bank’s near-term foreign debt repayments are small and linked to loan repayments, Fitch noted.

In the agency’s view, the authorities would have a high propensity to provide support to the banks, when needed, due to the banks' systemic importance, the state's majority ownership as well as tight supervision of the bank’s activities and their policy roles.

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