Concurrently, Moody's has changed the outlook on Credit-Standard Bank's E+ standalone bank financial strength rating (BFSR) to negative from stable. The standalone BFSR now maps to b3 on the long-term scale (b2 previously).

Moody's rating action is largely based on Credit-Standard Bank's financial statements for 2011 and 1Q 2012 prepared under Uzbeck GAAP, as well as the bank's non-public management reports for that period.

Moody's says that the rating action was triggered by the temporary freeze of Credit-Standard Bank's license for banking operations in foreign currency (FX license) by the Central Bank of Uzbekistan in 1Q 2012. Credit-Standard Bank has retained a general banking license, therefore it has continued to provide a range of services to its clients -- albeit to a lesser degree. The temporary suspension of Credit-Standard Bank's FX license led to over 70% outflow of customer funds from the bank, deterioration of its market franchise as well as a decline in recurring revenues.

In 1Q 2012, Credit-Standard Bank faced a severe deposit outflow and lost over 74 billion soums (US$40 million) of 'customer funds, and almost all of its 10 billion soums (US$5.7 million) interbank funding. Moody's observes that the bank's historically conservative liquidity management enables it to withstand deposit outflow without access to external liquidity support -- as of 1 January 2012 customer deposits were over 110% covered by liquid assets (65% of total assets as of that date).

However, the aforementioned 70% deposit outflow and decline in total assets led to significant shrinkage of Credit-Standard Bank's market position. Moody's estimates that the bank's share of total banking assets and customer deposits declined to less than 0.3% as at 1 April 2012 from close to 1% as at 1 January 2012. Moreover, a decline in interest-bearing liquid assets and lower fees generated from settlement services caused a significant decline in the bank's recurring revenues -- annualised interest income declined by 20% in 1Q 2012, while fee and commission income decreased by more than 50% compared to 2011. As Credit-Standard Bank was not able to adjust operating expenses respectively, it was close to break-even point in 1Q 2012 compared to over 3% return on average asset at year-end 2011.

The negative outlook on all Credit-Standard Bank's ratings reflects Moody's concerns over the bank's ability to recover its franchise and profitability. Although Credit-Standard Bank is seeking to re-activate its FX license, its success is uncertain, and the bank has not yet updated its strategy in the event of it operating solely under a general banking license.