Tashkent, Uzbekistan (UzDaily.com) --  Joint Stock Commercial Mortgage Bank Ipoteka-Bank’s (Ipoteka; BB-/Stable/b) ratings will likely be unaffected if the Uzbek government sells a majority stake in the bank to Hungary’s OTP Bank PLC (OTP), Fitch Ratings says.

According to OTP’s recent press release, the group has signed a non-binding agreement regarding the potential acquisition of a majority stake in Ipoteka with the Ministry of Finance of the Republic of Uzbekistan.

Ipoteka’s Long-Term Issuer Default Ratings (IDRs) reflect Fitch’s view of a moderate probability of support from the government of Uzbekistan in case of need, as reflected by the bank’s Support Rating (SR) of ‘3’ and Support Rating Floor (SRF) of ‘BB-’. This view is based on the bank’s majority state ownership, moderate systemic importance, current role in the government’s economic and social policy, the low cost of potential support relative to sovereign international reserves and a record of capital and liquidity support from the state.

If a controlling stake is ultimately sold to OTP, Fitch will stop factoring government support into Ipoteka’s ratings, but will likely consider potential support from OTP. Fitch would view OTP’s ability to support as more reliable than that of the Uzbekistan authorities, given the latter’s ‘BB-’ rating. Fitch will assess the new owner’s propensity to support Ipoteka if the privatisation is completed, but the agency’s base case is that this would be high, due to the majority ownership and potential reputational risks for OTP in case of a subsidiary default. The cost of any potential support would also likely be manageable, given Ipoteka’s small size relative to OTP (Ipoteka’s total assets would make up only 4% of the group’s total).

However, Ipoteka’s ability to utilise support from OTP would also consider potential transfer and convertibility restrictions, which are reflected in Uzbekistan’s Country Ceiling of ‘BB-’, and these would cap Ipoteka’s ratings at ‘BB-’, even in case of a potential sale. Fitch rates another OTP subsidiary, Russia-based OTP Bank, at ‘BB+’, based on potential support from the parent as this rating is unconstrained by Russia’s Country Ceiling of ‘BBB’. The ratings of the Russian subsidiary consider the strategic importance of the Russian market for the parent bank, OTP’s 98% ownership, the high level of integration, common branding and reputational risk for the parent in case of a subsidiary default.

Ipoteka’s Viability Rating (VR) of ‘b’, which reflects the bank’s standalone creditworthiness, is unlikely to be immediately affected by the potential privatisation. The VR captures Fitch’s assessment of the challenging operating environment in Uzbekistan, Ipoteka’s high lending growth in recent years, the bank’s largely untested asset quality, high balance-sheet dollarisation and increased dependence on external foreign-currency funding. The rating also considers the bank’s significant franchise in SME and mortgage lending, an adequate capital cushion (which has been supported by equity injections from the state) and moderate profitability.