S&P Global Ratings has announced the upgrade of Kapitalbank's long-term issuer credit rating to ‘B+’ from ‘B’, with a stable outlook. The short-term issuer credit rating remains affirmed at ‘B’. This upgrade reflects Kapitalbank's robust market position and strategic initiatives in the Uzbekistan banking sector.
Kapitalbank, the sixth largest bank in Uzbekistan by total assets as of June 1, 2024, commands significant shares of both the retail lending (11.5%) and retail deposits (20%) markets. The bank's strong brand recognition, coupled with advanced digital offerings and continuous investments in digital innovation, has bolstered its competitive edge. These factors position Kapitalbank as a leading private retail lending institution in the country.
"We expect Kapitalbank to continue investing in new technologies and maintain its leading position in digital innovation in the Uzbekistan market," noted S&P Global Ratings.
The bank's integration into the Uzum digital services ecosystem has facilitated substantial cross-selling opportunities, particularly in the SME segment.
S&P Global Ratings anticipates Kapitalbank's loan portfolio to grow by 30-40% annually over the next few years, driven by a robust business development strategy and enhanced fee-based services for SMEs. This growth trajectory is expected to contribute to an annual revenue increase of approximately 35-38%.
Despite challenges such as high inflation, Kapitalbank remains committed to maintaining operational efficiency, targeting a cost-to-income ratio of 40-45%. The bank's return on equity is forecasted at around 40%, surpassing industry benchmarks.
As of the end of 2023, Kapitalbank maintained an IFRS non-performing loan (NPL) ratio of 1.7% and a cost of risk of 31 basis points, contrasting starkly with sector averages of 7.2% and over 200 basis points, respectively. This reflects the bank's rapid expansion of its loan portfolio, which has averaged around 85% annually over the past three years, significantly outpacing industry norms.
Looking ahead, analysts anticipate that Kapitalbank will continue to exhibit strong asset quality metrics, projecting its loan loss allowance expense to range between 80 and 100 basis points, with IFRS NPLs expected to remain within the 1.8% to 2.2% range.
The stable outlook reflects S&P's confidence in Kapitalbank's ability to sustain strong financial performance and maintain sound asset quality metrics. However, the rating agency highlights ongoing risks, including managing rapid loan growth amid economic fluctuations and potential volatility in its deposit base.
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