Fitch: Uzbekistan's banking sector stable, but external pressures increases

Outlook for Uzbekistan's banking sector remains stable, supported by strong state-led investment and still high domestic consumption, Fitch Ratings said in a report on November 27.

“However, lower commodity prices, most notably for oil and cotton, a slowdown in major CIS trading partners and a drop in remittances from Russia may put pressure on Uzbekistan's economy,” Fitch said.

Asset quality of the country’s banks' is adequate with impaired loans averaging a moderate 4.7 percent of total loans and reserve coverage at a comfortable 90 percent at end-2014, according to the report.

Fitch expects asset quality metrics at end-2015 to be broadly in line with end-2014, given the so far limited impact on Uzbekistan's operating environment of negative external trends.

Capitalisation has been stable (with an equity/assets ratio of 10.1 percent and an equity/loans ratio of 15.4 percent at end-2014), due to regular capital injections from the state, the report said.

According to Fitch estimates, the available capital buffer is sufficient to increase loan impairment reserves by nine percent on average, which in most cases would be sufficient to withstand a moderate stress. “However, this should be viewed against the sector's recent rapid loan growth and only modest internal capital generation (return on average equity of 12 percent in 2014). Banks' capital positions in 2015 have been supported by equity contributions from the government and reduced loan growth,” Fitch stressed.

The banking sector’s liquidity risk is mitigated by a generally high share of liquid assets (above 20 percent at end-2014) and a comfortable loans-to-deposits (including state-dedicated funds) ratio of 94 percent at end-2014, according to the report.

“Liquidity buffers have remained adequate in 2015, supported by the limited refinancing needs of the sector and sticky customer accounts,” Fitch said.

/By Trend/