Fitch Ratings has affirmed the Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) of UZEX, or the Uzbek Commodity Exchange, at 'B', maintaining a Stable Outlook.
TrustBank Dependency and Counterparty Risk
A significant aspect influencing UZEX's ratings is its heavy reliance on TrustBank, where the bulk of its liquid assets finds placement. Fitch suggests that a TrustBank default could potentially lead to UZEX facing a similar fate. Efforts are underway to mitigate this risk through a diversification agreement with Octobank.
Concentration Risk and Niche Franchise
UZEX's balance sheet is largely influenced by clearing-related margin deposits, predominantly placed in liquid assets, presenting a high concentration risk. The exchange, boasting a 90% estimated market share in Uzbekistan, focuses on commodity trade intermediation. However, its franchise remains modest compared to more diversified financial institutions.
Recurring Profitability and Risk Management
UZEX draws revenue mainly from commodity exchange trading fees and clearing fees. While profitability has historically been volatile, the improvement since 2018 is acknowledged, with an EBITDA margin of 76% in 2022 deemed adequate. Fitch considers UZEX's risk management practices acceptable for its business model, providing reasonable protection against operational and indirect market risks.
Credit Risk and Short-Dated Balance Sheet
Credit risk for UZEX is intertwined with TrustBank, where most assets are deposited. Plans to diversify aim to alleviate credit concentration risk in the long term. UZEX's liquidity profile benefits from a short-dated balance sheet, with collateral deposits generally short term and well covered.
Government Support and ESG Considerations
While UZEX is a significant commodity exchange in Uzbekistan, government support is not guaranteed due to its limited importance to the financial system. TrustBank, a minority stakeholder, further diminishes the likelihood of government support. The ESG Governance Structure is negatively affected by UZEX's high reliance on TrustBank, impacting its ESG Relevance Score.
Rating Sensitivities
Potential downgrades hinge on TrustBank's performance and UZEX's susceptibility to counterparty risk. Adverse UZEX performance leading to substantial losses and solvency threats could also trigger negative rating actions. Conversely, TrustBank upgrades could lower counterparty risk for UZEX, while a long-term reduction in reliance on TrustBank may lead to positive rating adjustments.
Earlier Daryo reported that Fitch Ratings has given ANORBANK Long-Term Issuer Default Ratings (IDRs) of 'B-' with Stable Outlooks and a Viability Rating (VR) of 'b-'.
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