Digital lender TBC Bank Uzbekistan celebrates milestone as Fitch initiates coverage

Digital lender TBC Bank Uzbekistan celebrates milestone as Fitch initiates coverage
TBC arrived in Uzbekistan four years ago. / TBC
By Mokhi Sultanova in Tashkent June 6, 2024

Fitch Ratings has initiated coverage of digital bank TBC Bank Uzbekistan (TBCU) with a ‘BB-’ rating.

The long-term issuer default rating (IDR), issued with a stable outlook for the LSE-listed TBC Bank Group’s Uzbek subsidiary, is in line with the Uzbekistan sovereign rating.

Nika Kurdiani, CEO of TBC Group operations in Uzbekistan, said: “This is a historic milestone for TBC Bank Uzbekistan, underscoring our outstanding results. Fitch's rating is a testament to our profitable growth, strong balance sheet, and dedication to building a best-in-class fintech ecosystem.

“We are one of few companies to achieve a credit rating of BB- in Uzbekistan, which is the same level as the current sovereign rating.”

Oliver Hughes, head of international business at TBC Group, added: “TBC Bank Uzbekistan achieved profitability just two years after launch—a record time-to-profit among global digital banks.

“We are scaling our digital banking business and launching a wide range of digital financial services to improve the lives of the people of Uzbekistan. Operating a fully-licensed, consumer lending-led, and deposit-funded business model, we are committed to delivering further growth and long-term value for our shareholders.”

TBC Bank Group, a public limited company registered in England and Wales, is the parent company of JSC TBC Bank and a group of companies that principally operate in Georgia in the financial sector.  The group expanded its operations into Uzbekistan by in 2020 establishing retail digital financial services in the country.

Fitch also gave TBCU a viability rating (VR) of ‘b’, and said: “TBCU's Long-Term IDRs, as captured by the Shareholder Support Rating (SSR) of 'bb-', reflect potential ultimate support from Georgia-based TBC BANK JSC (TBC, BB/Stable), which is the core bank within TBC BANK Group PLC, TBCU's controlling shareholder. In our view, any potential extraordinary support would ultimately be sourced from TBC. TBCU's 'b' VR reflects its reasonable risk profile and asset quality and good capitalisation. It also considers the bank's still developing and untested business model and a limited record of profitable operations.”

Uzbekistan's economy, said Fitch, remains heavily dominated by the state, despite recent market reforms and privatisation plans. That has, it added, resulted in weak governance and generally poor financial transparency, with additional risks stemming from high dollarisation and concentrations of the banking sector and its reliance on state funding and external debt.

Looking at the roots of the Uzbek unit, Fitch said: “TBCU was established in 2020 as a digital bank to focus solely on retail operations, predominantly unsecured cash lending (95% of gross loans at end-1Q24).

“It is controlled by TBC Bank Group PLC, with EBRD [European Bank for Reconstruction and Development] and IFC [International Finance Corporation] holding minority stakes. While TBCU currently makes up only about 1% of sector assets and loans, it has established a stronger position in the retail segment (2.8% at end-1Q24), which we expect the bank to gradually improve further.”

Fitch also noted: “Since its operations began, TBCU has been growing its loan book rapidly (2023: 148%). We expect this above-sector growth to continue into 2024-2025 as the bank continues to expand its business in the higher-risk unsecured retail segment. However, we assess TBCU's underwriting standards as reasonably conservative for the domestic market as the bank issues granular loans denominated in local currency.”

TBCU’s impaired loans ratio equalled a limited 2.2% at end-2023, where, said Fitch, it is forecast to remain in 2024-2025 due to write-offs and expected high lending growth. Problem exposures were fully provisioned for, which further reduces asset-quality risks.”

TBCU was loss-making during the first three years of its operations due to high operating costs related to establishing its business operations, said Fitch, adding that in 2023, the bank reported its first annual net profit, with a return on average equity of 7%. High margins and economies of scale should boost TBCU's profitability in 2024-2025, although it will remain moderate in Fitch’s base case due to still substantial operating expenses, the rating firm said.

Fitch also concluded: “TBCU is largely funded by granular, albeit pricey, retail deposits (86% of end-2023 total liabilities). However, the bank has recently started to attract wholesale debt, including from the parent group, and we expect the share of external borrowings to increase in the medium term. The bank's liquidity position is modest, with total liquid assets covering around a quarter of customer deposits at end-2023.”