Fitch Ratings has reaffirmed the Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) of Uzbek Industrial and Construction Bank Commercial Bank (UICB) at 'BB-', with a Stable Outlook.
This decision reflects Fitch's assessment of a moderate probability of support from the Uzbekistan government (BB-/Stable), as indicated by its Government Support Rating (GSR) of 'bb-'. Additionally, Fitch has maintained UICB's Viability Rating (VR) at 'b'. The bank's ratings are underpinned by various factors including its exposure to the local operating environment, concentration risks, asset quality, profitability, capitalization, and funding structure.
UICB's Long-Term IDRs consider the likelihood of government support given its state ownership. The government intends to divest its controlling stake in the bank by the end of 2024, yet Fitch believes state support will remain available during this transition period. However, the VR reflects challenges including the volatile local operating environment, high concentration risks, asset quality concerns, moderate profitability, and capitalization levels, as well as reliance on external wholesale funding.
Uzbekistan's economy remains largely state-dominated despite recent market reforms, posing governance and transparency challenges. The banking sector faces risks from high dollarization and concentration. UICB, as the second-largest bank in Uzbekistan, is heavily focused on corporate lending but has been diversifying into commercial SME and retail lending.
The bank's loan book, predominantly corporate-focused, is highly dollarized and concentrated, presenting elevated asset quality risks. Although UICB's asset quality stabilized with a reasonable Stage 3 ratio, the Stage 2 ratio remains elevated, suggesting downside risks. Fitch anticipates stable profitability but notes UICB's moderate capital ratios and significant reliance on wholesale funding, though manageable refinancing risks are in place.
Factors that could lead to negative rating actions include a downgrade of Uzbekistan's sovereign IDR, the sale of UICB's controlling stake to a lower-rated investor, or a deterioration in asset quality affecting the bank's financial performance. Conversely, positive rating actions would require improvements in Uzbekistan's operating environment, expanded commercial franchise, enhanced asset quality and profitability, and strengthened capital ratios.
UICB's other debt and issuer ratings are aligned with its Long-Term IDRs and VR. Any changes in the VR would reflect corresponding adjustments in these ratings. ESG considerations are also factored into the analysis, with minimal impact observed.
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