Baku, Azerbaijan, Dec. 10
By Fikret Dolukhanov – Trend:
Uzbek banks’ credit metrics, and the sovereign’s ability to support state banks, are expected to remain stable due to the steady operating environment, underpinned by strong GDP growth (6 percent in 2019), Trend reports referring to Fitch.
Rating outlooks are therefore also stable. The main risks to banks’ financial metrics and to support-driven ratings stem from potential external shocks (which are not the base case) as exports are commodities driven, while external finances heavily rely on remittances.
Loan growth is expected to remain elevated in 2019 at above 20 percent (37 percent in 3Q18, FX-adjusted, non-annualised). This will be led by state-owned banks, which represented a large 84 percent of sector assets at end-3Q18, as state-led investments in the economy are mainly channeled through them. Retail loans are expected to double in 2018 with fast growth continuing in 2019 due to low penetration (retail loans/GDP ratio at 7 percent at end-3Q18) and looser underwriting standards.
Fitch is expecting reported asset quality metrics to remain stable (loans 90 days overdue were 1.3 percent of gross loans at end-3Q18) absent of significant stress. Rapid growth and significant foreign-currency lending (55 percent at end-3Q18) represent key risks, but the largest FC exposures in state-owned banks benefit from state guarantees.
Growth is likely to outpace capital generation (return on equity of about 10 percent is expected in 2019), so some moderate weakening of capital ratios is likely (sector Tier 1 capitalization was 14.7 percent at end-3Q18, down from 16.6 percent at end-2017).
State-owned banks may receive capital support from the authorities to offset fast growth of risk-weighted assets, while privately-owned banks mostly rely on internal capital generation, Fitch said.
Funding is mainly sourced from the state, in particular the state Fund for Reconstruction and Development (about half of end-3Q18 total liabilities), while customer accounts make up a further 38 percent. Repayments of wholesale debt are manageable and matched with loan tenors.
Fitch expects state funding to dominate in the sector in 2019 as a source for directed lending at the largest state-controlled banks.
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