However, lower commodity prices, most notably for oil and cotton, a slowdown in major CIS trading partners and a drop in remittances from Russia may put pressure on Uzbekistan’s economy.
Banks’ reported asset quality is adequate with impaired loans averaging a moderate 4.7% of total loans and reserve coverage at a comfortable 90% at end-2014 (the last date at which most banks produced IFRS accounts). Fitch expects asset quality metrics at end-2015 to be broadly in line with end-2014, given the so far limited impact on Uzbekistan’s operating environment of negative external trends. Foreign currency lending is at a significant 49% of total loans, although positively most borrowers have FX revenues, while the sector’s currency position is matched by FX denominated funding amounting to 49% of total liabilities.
Reported capitalisation has been stable (with an equity/assets ratio of 10.1% and an equity/loans ratio of 15.4% at end-2014), due to regular capital injections from the state. According to Fitch estimates, the available capital buffer is sufficient to increase loan impairment reserves by 9% on average, which in most cases would be sufficient to withstand a moderate stress. However, this should be viewed against the sector’s recent rapid loan growth and only modest internal capital generation (return on average equity of 12% in 2014). Banks’ capital positions in 2015 have been supported by equity contributions from the government and reduced loan growth.
The sector’s funding is dominated by (mostly corporate) customer accounts (60% of end-2014 total liabilities), which are predominantly short-term, but fairly stable. Long-term funding sources are mostly represented by deposits of the Uzbekistan Fund for Reconstruction and Development (UFRD, 17% of sector liabilities) and external foreign borrowings (12% of sector liabilities), mainly attracted by government-supported project finance programmes.
Liquidity risk is mitigated by a generally high share of liquid assets (above 20% at end-2014) and a comfortable loans-to-deposits (including state-dedicated funds) ratio of 94% at end-2014. Liquidity buffers have remained adequate in 2015, supported by the limited refinancing needs of the sector and sticky customer accounts.