Tashkent, Uzbekistan, Sept. 11
By Demir Azizov– Trend:
Fitch Ratings, the international ratings agency, said in a report that the sharp devaluation of the soum, the Uzbek national currency, will have only a moderate capital impact on the country’s banks rated by the agency, primarily thanks to the sizeable US dollar-denominated capital and long foreign exchange positions at banks with significant foreign-currency denominated lending.
The Central Bank of Uzbekistan devalued the soum by 52 percent against the US dollar (to 8,100 soums per US dollar from 4,210 soums) on Sept. 5 as part of the liberalization of the country's foreign exchange market. The exchange rate will now be defined weekly, as an average of exchange rates recorded on the Uzbek Republican currency exchange during the previous week.
Among the seven Fitch-rated banks in Uzbekistan, Uzbek Industrial and Construction Bank JSC (Uzpromstroybank; UPSB), Asaka Bank JSC and Ipak Yuli Bank's (IY) loan books are the most dollarized (about 79 percent, 59 percent and 25 percent, respectively), while loan dollarization at Agrobank OJSC, Microcreditbank (MCB) JSC, Trustbank (TB) PJSC and Universal Bank (UB) JSC is below 1 percent, according to the report.
However, UPSB and Asaka Bank benefit from around 40 percent of their equity being dollar-denominated as of late July 2017 and a low 20 percent risk-weighting on significant portions of their foreign exchange loan books, due to state guarantees, partially offsetting the devaluation impact, the report said.
All seven banks have long foreign exchange positions (UPSB - about 20 percent of equity as of late July 2017, Asaka Bank - 27 percent, Agrobank - 1 percent, MCB - 6 percent, IY - 17 percent, TB - 9 percent, UB - 7 percent) and should have booked translation gains as a result, the report noted.
UPSB's total regulatory capital adequacy ratio (CAR) of 13.5 percent at the end of July 2017 may have moderately declined to around 12.8 percent as a result of devaluation, but should still be above the 12.5 percent required minimum, said the report.
Asaka Bank's total CAR was 10.9 percent at the end of July 2017, below the regulatory minimum, but should have returned to being sufficient (around 13 percent) on the currency devaluation with a significant translation gain and inflation of its US dollar-denominated portion of equity, the report noted.
Both banks' capital positions will strengthen by the end of September 2017, when capital injections, already made, are booked, said the report.
“The larger US dollar-denominated injection is to strengthen state banks' natural hedge against potential further soum depreciation,” Fitch said.
State banks (UPSB, Asaka Bank, MCB and Agrobank) benefit from continuous capital support from the Uzbek state, including from the Fund for Reconstruction and Development, and Ministry of Finance, which has administered recapitalization programs of $500 million and 1.2 trillion soums, respectively, for state banks (Fitch-rated and others) this year, according to Fitch.
