Fitch Ratings has affirmed National Bank for Foreign Economic Activity of the Republic of Uzbekistan’s (NBU's) Long-Term Issuer Default Ratings (IDRs) at 'BB-' with stable outlooks and a Viability Rating (VR) at 'B'.

“NBU's 'BB-' IDRs reflect Fitch's view of a moderate probability of state support, in case of need, as reflected by the bank's 'BB-' Government Support Rating (GSR). This view is based on full state ownership, significant systemic importance, important roles in government economic and social policy, the low cost of potential support relative to the sovereign international reserves and a record of capital support to date,” the ratings agency said.

“Despite recent market reforms and privatisation plans, Uzbekistan's economy remains heavily dominated by the state, resulting in weak governance and generally poor financial transparency. Risks in the banking sector mostly stem from high dollarisation, significant exposure to long-term project finance and high reliance on external foreign-currency debt,” it noted.

In Fitch's view, NBU has a strong domestic franchise, as captured by its 22% market share and strategic state ownership. At the same, the high share of directed lending dampens NBU's margins and translates into certain structural business model weaknesses.

According to Fitch, NBU's support-driven ratings could be downgraded if the Uzbek sovereign was downgraded, or if Fitch changed its view on the Uzbek authorities' ability or propensity to support the bank.

“NBU's VR could be downgraded as a result of a sharp deterioration in asset quality that translates into lossmaking performance, reducing the bank's capital buffer to less than 100bp over regulatory minimum levels,” the rating agency noted.

However, it currently viewd this scenario as unlikely.