Moody’s endorses Uzbek banks

|By Arabian Post Staff| Uzbekistan’s banking system recently received Moody’s endorsement when the agency acknowledged that the country’s banks continue to benefit from a growing economy with well-diversified export revenues.

“As a result, banks in Uzbekistan are somewhat shielded from the volatility characteristic of some other countries in CIS,” Olga Ulyanova, a Vice President – Senior Analyst at Moody’s, said in a report.

The International Monetary Fund (IMF) forecasts real GDP growth of 5% for Uzbekistan in 2016, with growth supported by increasing gas exports to China, strong domestic demand from continued public infrastructure spending, and wage increases, Uzbek Embassy in Abu Dhabi said in an email message to the Arabian Post.

As a result of this benign operating environment, Moody’s expects problem loans to remain stable over the outlook period at 4%-5% of total loans. In addition, the rating agency does not expect sector-wide credit losses to exceed 1.5% of banks’ average gross loans over the next 12-18 months, in annualized terms.

Uzbek banks’ problem loan ratio declined to 3.5% at year-end 2015 from 3.9% a year earlier, owing largely to nearly 25% loan growth over this period. Moody’s notes that, in the long term, this rapid loan growth could cause asset quality deterioration if rapidly augmented and still ‘unseasoned’ loan vintages start maturing against the backdrop of a less favourable operating environment.

Nevertheless, Uzbek banks’ capital buffers and earnings are sufficient to absorb incremental credit losses over the outlook period. “Banks in Uzbekistan have a high proportion of loss-absorbing capital, as evidenced by a system-wide tangible common equity ratio of 14.7% as of end 2015,” explains Ms. Ulyanova. “The reported system-wide Tier 1 leverage ratio also was high at 9.7% as of end 2015.”

In addition, funding and liquidity metrics for the country’s banks will stay stable, underpinned by domestic customer deposits and long-term government funding. Rated Uzbek banks’ corporate and retail deposits comprise only about 56% of their non-equity funding — two other major sources are stable and long-term financing from the Uzbek government (20%) and funding from international financial institutions (15%).

Profits for Uzbek banks, too, will likely continue to be healthy over the outlook period, according to Moody’s, as continued strong borrowing demand boosts net interest income, and fee and commission income also remains solid. The rating agency forecasts system-wide return on average assets and return on average equity to remain around 1.5% and 15%, respectively.

The creation of favorable conditions for doing business in Uzbekistan and simplified licensing procedures have contributed to the growth of business activity. There  are 11.1 small business entities per thousand people in Uzbekistan. The index is remarkably higher than in many CIS countries.

In a relatively short period, small businesses and private enterprises have turned into a decisive force in addressing economic and social issues, development of industries and services, ensuring a prosperous life. The fact is proved by the figures: in 2015, the share of this sector in the gross domestic product increased by 31% to 56.5% against 2000, the share in the volume of industrial production – from 12.9% to 38.9%, in exports – from 10.2% to 26.9%, and in ensuring employment – from 49.7% to 77.9%. In 2000-2015, the number of small businesses has grown by nearly 2.2 times.

Further elimination of barriers and licensing procedures has been an important component in the work on the support of the ‘small economy’. The statistical authorities that have been gradually reducing reporting over the recent years have demonstrated a noticeable success in this context. To date, the number of statistical reports without prejudice to the completeness and quality of data has decreased by almost thrice against 2000.