UPSB’s Long- and Short-term IDRs are underpinned by potential support from the Uzbek authorities. Given the bank’s important role in servicing state-owned companies, its significant domestic franchise and the close links with government (reflected, for example, in the fact that representatives of state-controlled entities comprise a majority of the supervisory board), in Fitch’s view, there would likely be a quite high propensity of the authorities to support UPSB, in case of need. However, in light of the Uzbek sovereign’s own credit profile, this support cannot be relied upon. Improvement or deterioration in Uzbekistan’s sovereign risk profile may generate upward or downward pressure, respectively, on UPSB’s ratings.

The Individual rating reflects UPSB’s size, which is small by international standards, high concentrations on both sides of its balance sheet, significant levels of non-performing loans driven by a single large overdue exposure, potentially vulnerable liquidity and certain weaknesses in the operating environment. At the same time, the rating considers UPSB’s reasonable profitability to date.

Upside for the Individual rating is currently limited, but UPSB’s stand-alone credit profile could benefit from improvements in the liquidity position, diversification of the bank’s franchise and customer base and a strengthening of capitalisation. Significant credit losses or further deterioration of UPSB’s liquidity would exert downward pressure on the Individual rating.

UPSB is the successor to the Uzbek branch of the Soviet Industry and Construction Bank and was majority owned by state-controlled companies until 2006. Fitch views the current ownership structure as complex and fluid. More than 50% of the bank’s stock is held by private investors, which have become shareholders since 2006; however, in Fitch opinion, some uncertainty exists as to the ultimate beneficiaries of at least some of these shares. State-owned companies, including Uzbekneftegas and Uzbekenergo, hold in aggregate more than 25% of voting shares. Their stakes may increase significantly this year following the placement of a new share issue registered in December 2007, although, in Fitch’s opinion, the future ownership structure remains uncertain.

At present, despite its formal independence from the government, UPSB still retains close relationships with the state and state-controlled entities, particularly those from the oil, gas, power and chemical sectors, reflected in the composition of both its funding base and loan portfolio. At end-2007, UPSB was the third largest by assets among Uzbekistan’s 28 banks, with a market share of approximately 11%. The bank’s network is among the largest in Uzbekistan, including 48 branches, 92 mini banks and 449 outlets.