Moody's rating action is largely based on Savdogarbank's audited financial statements for 2009 and 2010 prepared under IFRS.

According to Moody's, Savdogarbank's E+ BFSR (which maps to B2 on the long-term scale) and B2 deposit ratings are constrained by (i) the bank's modest market franchise; (ii) its weak profitability and cost-efficiency metrics, especially compared to the majority of local peers, whereby the bank's return on average assets (ROAA) and return on average equity (ROAE) stood at 0.4% and 4.1%, respectively, in 2010; and (iii) the very high concentration and short-term duration of the bank's customer funding base, with the three largest depositors accounting for half of the bank's customer funding base and two-thirds of total customer funding comprising current and settlement accounts, which potentially poses the risk of chunky withdrawals.

Factors underpinning Savdogarbank's ratings include (i) the high granularity of the bank's loan portfolio compared to the majority of local peers, with the 20 largest loans together accounting for less than 80% of the bank's Tier 1 capital; (ii) absence of credit exposure to related parties; (iii) the bank's adequate capitalisation, with the Tier 1 ratio at 17.9% at year-end 2010; and (iv) adequate liquidity cushion accounting for a quarter of Savdogarbank's total assets, which partially mitigates risks of sudden withdrawals by large depositors.

Moody's explained that Savdogarbank's global local currency deposit ratings of B2/Not Prime do not incorporate any element of systemic support given the bank's limited franchise value and its low importance for the Uzbek banking system as a whole. Nor do Savdogarbank's ratings incorporate any probability of shareholder support to the bank, in case of distress.

According to the rating agency, Savdogarbank's BFSR has limited upside potential at its current level. However, in the longer term, the BFSR might map to a higher long-term scale, as opposed to B2 currently, if the bank were to strengthen its franchise value and further diversify its credit exposures (particularly in terms of region and industrial sector), while also reducing concentration levels and lengthening the maturity of its funding base. In order to achieve higher ratings, all the conditions mentioned above would need to be accompanied by sustainably sound asset quality, improved financial performance and adequate capital levels.

Negative pressure could be exerted on Savdogarbank's ratings if (i) asset quality, profitability and/or capital levels significantly weaken as a result of mismanagement of especially the bank's expanded regional activity, or following any general deterioration of operating environment in Uzbekistan, or (ii) if the bank is unable to maintain an adequate liquidity position because of a withdrawal by key depositors. A substantial increase in the volume of related-party business or non-core investments (such as equities or fixed assets) represents another factor that could have an adverse impact on Savdogarbank's ratings.

Headquartered in Tashkent, Uzbekistan, Savdogarbank reported -- under audited IFRS -- total assets of US$122.5 million and total shareholder equity of US$14.0 million as at 31 December 2010; net IFRS income stood at US$448,000 as at year-end 2010.