The reorganisation of Uzbekistan-based Qishloq Qurilish Bank (QQB), recently announced by the Uzbek authorities, will strengthen its ties to the government due to the lender’s important new policy role and material budgeted near-term government capital and funding support, Fitch Ratings says.

“There is no immediate impact on the bank’s Long-Term Issuer Default Ratings (IDRs), although we expect reduced downward rating pressure – which had stemmed from capital support being insufficient to address material provisioning needs in the past few years. In addition, new capital injections, if not fully offset by lending growth, may have a positive impact on our assessment of the bank’s Viability Rating (VR; b-),” the rating agency said.

According to a recent presidential decree, QQB will be re-branded as Business Development Bank and will primarily focus on long-term financing for small businesses at below-market rates and with relaxed collateral requirements.

QQB will also become the primary operator of state support for the small business segment of Uzbekistan’s economy, providing a host of consulting and other services through its subsidiary Fund for Small Business Development and 14 regional small business support centres.

Another decree mandates the government to increase QQB’s common equity to UZS 3 trillion by end-2024 (a UZS 1.1 trillion increase from end-2022, or 5% of end-2022 risk-weighted assets; RWAs) and convert UZS 0.5 trillion (a further 2.4% of RWAs) of state-funded loans into subordinated debt.

QQB’s Long-Term IDRs have already been equalised with the sovereign rating of Uzbekistan given the bank’s majority state ownership and moderate systemic importance, the low cost of potential support for the sovereign and previous support from the state. Thus the reorganisation announcement has had no immediate impact on the ratings. However, the new important policy role assigned to QQB will increase its association with the sovereign, in Fitch’s view, given the high priority the government places on developing the SME sector in Uzbekistan.

“Given the business model change, we believe QQB’s privatisation plans may be postponed,” the agency added.