Uzbek Banks Moderately Resilient to Near-Term Risks, Despite Structural Weaknesses
Tashkent, Uzbekistan (UzDaily.com) -- The credit profiles of Uzbek banks are moderately resilient to near-term risks, Fitch Ratings says in a new report covering the country’s five largest banks.
According to Fitch Ratings baseline scenario, the financial profiles of large Uzbek banks should remain stable over the next 12–24 months, on the back of improving macroeconomic conditions and availability of state or shareholder support. We expect the banks’ pre-impairment profitability metrics to gradually improve as their commercial business develops and exposure to low-margin policy lending reduces.
However, potentially stronger earnings could be offset by higher provisioning needs due to continued pressure from crystallising asset-quality risks, so the banks’ net returns will likely remain around the current levels, translating into moderate capital buffers. In particular the banks’ loan books are highly concentrated and heavily dollarised, while many loans are long-term project finance exposures, giving rise to asset-quality risks.
Uzbek banks are also heavily reliant on wholesale funding (most of which is sourced externally), and have only moderate liquidity cushions. This could give rise to refinancing risks in the medium term, despite manageable near-term contractual repayments.
Several structural weaknesses, which are intrinsic to the banking sector and the broader economy, remain a drag on the banks’ credit profiles. Despite some privatisation efforts, the country’s economy and financial sector are heavily dominated by the state. This results in generally low financial transparency, certain weaknesses in governance, regulatory gaps and subdued competition.