September 8, 2017 / 12:32 PM / 10 months ago

Fitch: Uzbek Banks' Capital Largely Insulated From Devaluation

(The following statement was released by the rating agency) LONDON, September 08 (Fitch) The sharp devaluation of the som will have only a moderate capital impact on Uzbek banks rated by Fitch Ratings, primarily thanks to the sizeable US dollar-denominated capital and long FX positions at banks with significant foreign-currency denominated lending. Among the seven Fitch-rated banks in Uzbekistan, JSC Uzbek Industrial and Construction Bank (UPSB), JSC Bank Asaka (Asaka) and Ipak Yuli Bank's (IY) loan books are the most dollarised (about 79%, 59% and 25%, respectively), while loan dollarisation at OJSC Agrobank (Agro), JSC Microcreditbank (MCB), PJSC Trustbank (TB) and JSC Universal Bank (UB) is below 1%. However, UPSB and Asaka benefit from around 40% of their end-7M17 equity being dollar-denominated and a low 20% risk-weighting on significant portions of their FX loan books, due to state guarantees, partially offsetting the devaluation impact. All seven banks have long FX positions (UPSB about 20% of end-7M17 equity, Asaka 27%, Agro 1%, MCB 6%, IY 17%, TB 9%, UB 7%) and should have booked translation gains as a result. UPSB's total regulatory capital adequacy ratio (CAR) of 13.5% at end-7M17 may have moderately declined to around 12.8% as a result of devaluation, but should still be above the 12.5% required minimum. Asaka's total CAR was 10.9% at end-7M17, below the regulatory minimum, but should have returned to being sufficient (around 13%) on the currency devaluation with a significant translation gain and inflation of its US dollar-denominated portion of equity. Both banks' capital positions will strengthen by end-9M17 when capital injections, already made, are booked. IY's CAR (12.7% at end-7M17) may have dipped to around 12% but the bank expects to address the shortfall by raising new capital in the next couple of months. We expect IY will receive regulatory forbearance in the meantime. Agro, which has been intermittently in breach of the regulatory minimum in the last year (7.4% at end-7M17), already receives regulatory forbearance, although it should also become compliant by end-9M17 after a planned capital injection. MCB, TB and UB's total CARs were 17.7%, 14.3% and 15.6%, respectively, at end-7M17 and should not have been significantly affected by the devaluation. Among banks with the most dollarised loan books, indirect FX risks are limited at UPSB and Asaka as their foreign-currency exposures are predominantly to hedged borrowers, while IY appears to be more vulnerable. State banks (UPSB, Asaka, MCB and Agro) benefit from continuous capital support from the state, including from the Fund for Reconstruction and Development, and Ministry of Finance, which has administered recapitalisation programmes of USD500 million and UZS1.2 trillion, respectively, for state banks (Fitch-rated and others) this year. These amounts are already disbursed and will be booked shortly. The larger US dollar-denominated injection is to strengthen state banks' natural hedge against potential further som depreciation. The Central Bank of Uzbekistan devalued the som by 52% against the US dollar (to 8,100 som per US dollar from 4,210 previously) on Monday as part of the liberalisation of the country's foreign-exchange market. The exchange rate will now be defined weekly, as an average of exchange rates recorded on the Uzbek Republican currency exchange during the previous week. Contact: Maria Kuraeva Associate Director, Financial Institutions +7 495 956 5575 Fitch Ratings CIS Limited Valovaya Street, 26 Moscow 115054 Sergey Popov Associate Director, Financial Institutions +7 495 956 9981 Konstantin Alekseenko Analyst, Financial Institutions +7 495 956 2401 David Prowse Senior Analyst, Fitch Wire +44 20 3530 1250 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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