Ravnaq-bank outlook revised to developing from positive
The outlook revision stems from doubts of S&P Global Ratings about whether Ravnaq-bank can increase its share capital to UZS100 billion by Jan. 1, 2019, in accordance with new banking regulation.
“The bank’s authorized capital was only UZS22.8 billion as of Sept. 30, 2017. Since, in our view, Ravnaq-bank's internal capital generation is insufficient to bring its capital to the target level, the bank is reliant on shareholders’ ability to inject new capital. However, we consider the main shareholder’s capacity to inject new capital to be uncertain. We have revised our outlook on the rating to developing, since we consider that two scenarios are possible,” the agency said.
“We think that the shareholder might provide additional capital, thereby allowing the bank to continue its operations. It is also possible that the capital could be provided in stages and over a period longer than one year. Although this would mean the bank might not be compliant on Jan. 1, 2019, we think the regulator could potentially provide a waiver, or soften or postpone the requirement, especially if it concludes that a number of banks are unable to meet it,” the agency said.
“We see as almost equally possible that, if the bank cannot secure additional capital to meet new minimum capital requirements, the regulator may not be willing to provide a waiver. In that case, we would expect regulatory actions to follow, which might range from limiting certain of Ravnaq-bank’s activities or withdrawing its license,” the statement of S&P Global Ratings reads.
“That said, we currently do not have sufficient information to assess the main shareholder’s capacity to provide additional capital. Furthermore, the regulator’s potential reaction in case of noncompliance with the new capital requirement is unclear,” it added.
“We understand that Ravnaq-bank’s controlling shareholder is committed to injecting about UZS8 billion in capital before the end of this year, in addition to UZS2 billion injected earlier in 2017, and UZS70 billion in 2018. We are less certain about whether the shareholder can provide the full UZS70 billion in 2018, and consider it likely that the amount might be smaller or provided over a longer period,” the agency underlined.
“We do not expect the bank’s internal earnings generation will be sufficient to help its capital increase to the required UZS100 billion by 2019 without external support. We forecast the return on average equity at 13%-18% in 2017, including one-time foreign currency revaluation gains realized after the exchange rate liberalization on Sept. 5, 2017, before decreasing to 6%-8% in 2018,” the statement said.
“Our ‘CCC+’ rating on Ravnaq-bank continues to reflect our view that the bank is vulnerable and dependent upon favorable business, financial, and economic conditions to meet its financial commitments,” S&P Global Ratings saod.
The agency said: “The developing outlook indicates that over the next 12 months we could affirm, raise, or lower our ratings on Ravnaq-bank, depending on the bank’s ability to increase its authorized capital to the new minimum requirement of UZS100 billion by the beginning of 2019”.
“We could lower the ratings over the next 12 months if the controlling shareholder appears unwilling or unable to provide sufficient capital support to allow Ravnaq-bank to satisfy the minimum capital requirements, leading to regulatory action that restricts the bank's activities (including suspension of its banking license as the worst-case scenario),” the S&P Global Ratings added.
“We could raise the ratings if, in our view, Ravnaq-bank is able to comply with the new regulatory capital requirement, provided the bank’s creditworthiness does not deteriorate and its business position remains stable, or if the regulator is willing to relax the new capital requirement and the bank is therefore able to comply with it,” the agency concluded.