BAKU, Azerbaijan, Dec. 15
By Klavdiya Romakayeva - Trend:
Ipak Yuli Bank, Trustbank, and Universal Bank will withstand pressure from the pandemic and resulting asset quality deterioration given good pre-impairment profitability cushions and reasonable capital buffers, Trend reports referring to the press service of Fitch Ratings Agency.
Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of Uzbekistan-based private bank JSICB Ipak Yuli (IY) at 'B' and PJSB Trustbank (TB) and of JSCB Universal Bank (UB) at 'B-' with stable outlooks.
Impaired loans (stage 3) ratios were flat at all three banks in 9M2020. However, 40 percent to 50 percent of loans were on credit holidays (the regime recommended by the government to support borrowers in the pandemic) in 2Q2020-3Q2020.
Banks continued accruing interest on loans during credit holidays adding it to the principal, which resulted in an uptick of accrued but not received interest. Credit holidays ended on 1 October 2020 and according to the management of all three banks, the vast majority of exposures were performing in 4Q2020.
"We expect some of these exposures will need restructuring in 2021, which together with a high dollarisation (especially in case of IY) and high lending growth in recent years puts pressure on banks' asset quality," Fitch said.
Ipak Yuli Bank - the impaired loans ratio increased to 5.3 percent at end of 9M2020 from 5 percent at end of 2019 and impaired loan coverage by total provisions was moderate to 62 percent, reflecting management's expectation that hard collateral underpins recoveries. Loans on credit holidays made up 49 percent of total gross loans at end-3Q20, this was particularly high 94 percent in retail.
"Most exposures returned to the schedule in October, but management expects up to 10 percent of these exposures to need restructuring or become overdue in 2021, leading to an uptick in impaired loans ratio," Fitch said.
Trustbank - loans on credit holidays made up 43 percent of gross loans by the end of 3Q2020, but only 1 percent of these exposures became overdue in October. Impaired loans ratio was a low 1.4 percent at end-1H20, unchanged since the end of 2019. However, Stage 2 loans made up a further 13 percent at the same date (up from 3 percent at end-2019).
Fitch expects conversion of Stage 2 loans into impaired to pressure TB's asset quality metrics in 2021.
Universal Bank - the reported impaired loans ratio was low 1.4 percent at the end of 1H2020, while loans on credit holidays made up 44 percent of total balance at the end of 3Q2020. According to management, only 1 percent of loans on credit holidays became overdue in October.
Fitch believes that stage 2 loans may increase to 15-20 percent by the end of 2020 from a low 3 percent at the end of 2019.
In addition, potential pressure stems from the long-term nature of UB's loan book, as a large part of the bank's loan exposures are still on grace periods and some of them may become impaired upon seasoning. Loan book dollarisation was a moderate 24 percent at end of 10M2020.
"We believe the bank will be able to withstand a moderate increase in the cost of risk helped by a reasonable cushion of pre-impairment profit," Fitch said.
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