Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of Uzbekistan’s Joint-Stock Innovation Commercial Bank Ipak Yuli and PJSC Trustbank at ‘B’, and JSC Universal Bank at ‘B-‘.
The Outlooks are Stable, said a message from Fitch.
Fitch noted that the IDRs of the three banks are driven by their intrinsic strength, as reflected in their Viability Ratings (VRs). The affirmation of the banks’ ratings factor in the banks’ reasonable performance and stable asset quality metrics, partly owing to state support for export-oriented entities and those involved in import replacement, reasonable liquidity and capitalization.
The ratings also reflect structural weaknesses in the Uzbekistan’s economy and the banks’ modest and concentrated franchises in the state-dominated banking sector, according to Fitch.
“The Stable Outlooks reflect Fitch’s expectations that the banks’ credit profiles are unlikely to deteriorate significantly in the medium term, supported by continuing economic growth in Uzbekistan (Fitch forecasts 6 GDP growth per year in 2018 and 2019) and generally reasonable pre-impairment profit buffers,” the message reads.
Fitch noted that asset quality remains adequate at all three banks with non-performing loans remaining in low single digits at end-3Q17 .
However, the ratios should be viewed in line with the banks’ recent rapid growth (40%-53% in 2017) and limitations in the local GAAP disclosures in the case of Trustbank and Universal Bank, whose latest IFRS reports are for 2016. Reserves fully covered NPLs at all three banks at end-3Q17. NPL write-offs were negligible at all three banks in 2016-9M17, while reported levels of restructured exposures were also low (below 1% of loans at end-3Q17).
“Foreign currency loans were negligible in Trustbank and Universal Bank but made up a significant 43 percent of total loans in IY at end-3Q17. However, Ipak Yuli lends in foreign currency mainly to exporters or other companies with foreign currency revenue, and therefore the sharp Soum depreciation in September 2017 affected only few of Ipak Yuli’s borrowers (1% of total loans), whose loans were later restructured,” the message reads.
Fitch further stressed that pre-impairment profitability was healthy in 2017 (estimated at 10 percent of average loans at IY and TB, 7 percent at UB; local GAAP), supported by sound net interest margins of 10-14 percent, solid commission income and foreign currency revaluation gains. Impairment charges were about 1 percent of average loans for all three banks resulting in a reasonable return on average equity (ROAE) of about 30% for IY and TB, and a lower 15% for UB due to higher operating costs.
“Liquidity is reasonable, as banks keep solid buffers of liquid assets (cash and equivalents and short-term interbank placements), which equaled to 30-40 percent of customer accounts net of near-term debt repayments at end-3Q17. Liquidity in local currency was somewhat tighter, as the banks prefer to maintain long open currency positions and record gains on Soum depreciation. However, banks can attract short-term Soum funding from the Central Bank of Uzbekistan (collateralised with deposits in foreign currency),” the message reads.