Baku, Azerbaijan, March 6
By Fakhri Vakilov - Trend:
S&P Global Ratings raised Uzbek Ravnaq-Bank’s (Ravnaq) long- and short-term issuer credit ratings from “CCC+/C” to “B-/B”; the outlook is stable, Trend reports with reference to the rating agency.
The positive rating action reflects that the extensive amount of capital injections provided to Ravnaq by its beneficiary shareholder released regulatory pressure, enabling the bank to comply with the necessary minimum amount of authorized capital as set by the presidential decree for all banks in the country starting from 2019.
Ravnaq received 77 billion soums in equity inflows in 2018 and reported share capital of 100 billion soums on Jan. 1, 2019, which is exactly the minimum requirement.
Shareholder capital support and their broad business relations mitigate the concerns regarding the bank's deteriorated liquidity position. Due to Ravnaq's relatively aggressive loan growth in 2018, its share of liquid assets reduced from 40 percent at year-end 2017 t 22 percent of assets at year-end-2018.
Although this level is adequate, this aggressive liquidity policy leaves the bank potentially vulnerable to unexpected funding volatility, which is the common risk factor for smaller Uzbek banks. The bank's vulnerability is further exacerbated by its only minor market position, with limited customer base, and high sensitivity to the external environment.
Positively, its influential owners' ties and relationships partly balance these risks and help to retain customers. Almost 35 percent of Ravnaq’s deposits are loyal because they are closely connected with existing shareholder.
In addition, the rating agency negatively views the bank’s fast growth strategy, which in the context of tight competition and developing risk management practices, could result in higher-than-expected losses. Ravnaq’s loans increased by 92 percent in 2018, however, 40-50 percent growth is expected annually in 2019-2020.
At the same time, this rapid expansion is happens partly due to high-inflation and a more-benign operating environment against the backdrop of a rapidly expanding banking sector.
Moreover, the agency notes that Ravnaq is increasing its exposures from a low base, while its total equity increased three times during 2018, contributing substantially to the bank’s capital buffers.
The stable outlook reflects that Ravnaq's increased capital buffers and the owners' commitment to support the bank if necessary, mitigates risks related to the bank’s relatively aggressive liquidity policy and its fast growth strategy over the next 12 months.
The agency could consider a negative rating action over the next 12 months if see further deterioration in the bank's funding and liquidity profile, or significant asset quality deterioration.
The chance of a positive rating action over the next 12 months is remote. However, the agency could consider an upgrade if Ravnaq’s risk-adjusted capital ratio improves and remains sustainably above 10 percent, with its seasoning loans not resulting in significantly higher-than-expected credit losses, all else being equal.
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