Standard & Poor’s Global Ratings revised its outlook on Uzbekistan-based Turkiston Bank to stable from negative. The agency affirmed the ‘B-/C’ long- and short-term counterparty credit ratings.
“The outlook revision reflects our view of the benefits Turkiston Bank might have thanks to having obtained a foreign currency license. In our view, the license enables Turkiston Bank to offer its clients foreign currency operations it was not able to service before, opening the door to a wider client base, gradually increasing business volume, and a broader, more diversified deposit base. We also view positively that, despite a deteriorating economic environment in the region and increasing competition in the sector, Turkiston Bank has maintained adequate liquidity and prudent asset and liability management to cope with risks of potential funding outflows. Furthermore, the bank has retained sufficient capital to absorb possible unexpected losses,” the agency said in a statement.
“Our assessment of Turkiston Bank’s capital and earnings as strong mainly reflects our projection that its risk-adjusted capital (RAC) ratio will exceed 10.0% over the next 12-18 months versus 11.1% at year-end 2014. Our expectations are based on 15% asset growth in 2016 and 35% in 2017, as well as capital injections of about 5.4 billion soums in 2016 (approximately US$1.9 million), of which 1.1 billion soums has already been injected in the first quarter of 2016, and about 2.3 billion soums in 2017,” the rating agency underlined.
“So far Turkiston Bank’s funding position has supported its business activities, and the bank maintains a sufficient liquidity cushion to deal with the volatility of on-demand deposits. As of Feb. 29, 2016, 94% of on-demand deposits were covered by liquid assets (net of reserves in the Central Bank of Uzbekistan). We note as a strength the ratio of demand to term deposits being 48% as of March 31, 2016, which is markedly less than the year-end 2014 figure of 101% and significantly lower than that of local peers,” the statement noted.
“We believe that the presence of a foreign currency license may help improve the bank’s business and funding profiles, thanks to a customer base with enhanced loyalty because enterprises will be more eager to open primary accounts with Turkiston Bank. As such, the bank’s funding base and asset growth will potentially experience less volatility, enabling the bank to focus more on profitability by maintaining a lower liquidity buffer,” the agency underlined.
The stable outlook on Turkiston Bank reflects our view that, over the next 12-18 months, the bank will be able to counter prevailing downside risks due to the challenging operating environment by retaining sufficient capital and liquidity.
A negative rating action is most likely to occur if Standard & Poor’s Global Ratings observes poor liquidity and asset and liability management, which could lead to the aggravation of risks, connected with potential volatility of the bank’s funding base, particularly in volumes of customer deposits, and deterioration of customer franchise or the bank’s earnings capacity and capital inflow cannot support the current strong capitalization, resulting in a RAC ratio below 10%.
Standard & Poor’s Global Ratings believes that a positive rating action is remote at this stage.