Fitch Ratings agency has reaffirmed a stable outlook for Uzbekistan’s banking sector, but noted the possibility of an increase in external pressures on the Uzbek economy, the agency said in a statement on November 27.

The stable outlook is supported by strong state-led investment and high domestic consumption, while increased external pressures on the country’s economy may result from lower commodity prices such as oil and cotton, a drop in remittances from Russia, and a slowdown in major trading partners in the CIS region, according to the statement. 

“Banks' reported asset quality is adequate with impaired loans averaging a moderate 4.7% of total loans and reserve coverage at a comfortable 90% at end-2014,” the statement reads.

“Foreign currency lending is at a significant 49% of total loans, although positively most borrowers have FX revenues, while the sector's currency position is matched by FX denominated funding amounting to 49% of total liabilities.”

The agency expects asset quality metrics by the end of 2015 to stay broadly in line with end of 2014, due to negative external trends having a limited impact on the country’s operating environment, according to the statement. Additionally, the agency noted that regular capital injections from the state have kept capitalisation stable in the sector. “The available capital buffer is sufficient to increase loan impairment reserves by 9% on average, which in most cases would be sufficient to withstand a moderate stress,” the statement reads.

Most of the banking sector's funding comes from fairly stable short-term corporate customer accounts, the statement said. Long-term funding sources are generally represented by deposits of the Uzbekistan Fund for Reconstruction and Development and external foreign borrowings. “Liquidity risk is mitigated by a generally high share of liquid assets (above 20% at end-2014) and a comfortable loans-to-deposits ratio of 94% at end-2014,” the statement added.