“The affirmation reflects our expectation that KDB Uzbekistan will preserve a sufficient capital buffer in the next 12-18 months to support further business expansion, while maintaining a low risk appetite and good asset quality,” the agency said.

“We expect that KDB Uzbekistan will continue focusing mainly on providing large and midsize corporate clients with treasury services, such as settlements, foreign currency conversion transactions, and trade finance facilitates,” S&P Global Ratings added.

As of Sept. 30, 2017, a major part of the bank’s assets remained low risk and liquid. Cash and balances with the central bank represented 35% of the bank’s total assets, while another 47% of assets were interbank deposits placed with highly rated banks from South Korea and Europe.

S&P Global Ratings thinks that the bank’s lending activity will remain minor and its share in the loan portfolio will not exceed 5%-7% of total assets in 2018-2019. KDB Uzbekistan will likely stick to its low risk appetite and conservative approach to lending, reflected in persistently low nonperforming assets and low credit losses through the cycle.

“Our assessment of KDB Uzbekistan’s capital and earnings as adequate mainly reflects our expectations that the bank’s forecast risk-adjusted capital ratio will be in the range of 9.4%-9.7% in the next 12-18 months versus 11.9% as of midyear 2017. The expected decline reflects our assumptions of a material (about 150%-170%) increase of the bank’s risk-weighted assets in 2017 owing to sharp devaluation of local currency and a relatively large share of assets denominated in U.S. dollars (about 46% as of year-end 2016). In our view, the increase in risk-weighted assets will be only partially offset by the revaluation of U.S. dollar-denominated share capital and growing net earnings. Although we believe that the bank’s profitability will remain high and will be supported by a stable net interest margin and good operating efficiency, earnings growth will likely lag the expected business growth,” S&P Global Ratings said in a statement.

S&P Global Ratings noted that KDB Uzbekistan’s depositor base remains sticky and predominantly consists of current accounts of large local and international corporations operating in Uzbekistan. Despite their contractually short-term nature, these current accounts have been stable for the past five years. S&P Global Ratings expects that the bank will continue demonstrating strong funding and adequate liquidity metrics, exceeding those of local peers, mainly thanks to the short-term and liquid nature of the bank’s assets.

“We consider KDB Uzbekistan to be a strategically important subsidiary of Korea Development Bank. We base our view on the high operational integration between the parent and KDB Uzbekistan. Moreover, we acknowledge that KDB Uzbekistan’s commercial franchise, brand name, and financial profile all benefit from being part of a large and strong group. However, our long-term rating on the bank remains at the level of ‘B+’ as we cap the rating at the level of our view of the sovereign’s creditworthiness,” S&P Global Ratings noted.

“The stable outlook on KDB Uzbekistan reflects our view that the bank will adhere to its current business model and maintain a low risk profile over the next 12-18 months, while it will also continue displaying solid profitability and strong capitalization,” the agency underlined.

“We are unlikely to raise the ratings on KDB Bank Uzbekistan over the next 12-18 months, unless the sovereign’s creditworthiness improves. A negative rating action is also unlikely in the next 12-18 months, in our view,” S&P Global Ratings concluded.