The review of the deposit ratings will look at the extent to which Uzbekistan’s ability to provide support to its banking system, should such support be needed, has changed in the midst of the ongoing global economic and credit crisis.

The rating agency believes that most governments are at least as likely, if not more likely, to support their banking systems as they are to service their own debts -- a view that has traditionally led to bank ratings often benefiting from significant uplift due to systemic support. However, as the financial crisis wears on, the capacity of a country and its central bank to support the nation’s banks converges with, and is constrained by, the government’s own debt capacity. As such, Moody’s will be reassessing the level of systemic support for the banks listed.

The following ratings were placed on review for possible downgrade:

- National Bank of Uzbekistan -- Global Local Currency (GLC) deposit rating of Ba3

- Ipoteka Bank -- GLC deposit rating of B1

- Alokabank -- GLC deposit rating of B1

Moody’s will review the specific circumstances of Uzbekistan to determine the appropriate systemic support for Uzbek bank ratings and the implications for the National Bank of Uzbekistan, Ipoteka Bank and Alokabank that have been identified as being potentially affected. Factors that the rating agency will consider in its assessment of systemic support include the size of the banking system in relation to government resources, the level of stress in the banking system, the foreign currency obligations of the banking systems relative to the government’s own foreign exchange resources, and changes to government political patterns and priorities.

In autumn 2008, with a view to supporting local banks amidst the more challenging economic environment and securing further growing opportunities for the still small and developing national banking sector, Uzbekistan’s government announced plans to inject additional resources -- mainly in the form of fresh capital -- into a number of banks deemed systemically important; this contribution is likely to total over 300 billion soums (approx. US$205 million). In addition, the government recently removed existing limits on the level of private deposit insurance coverage, as per the mandatory state insurance programme, thus addressing the potential impact of the global economic turbulence on the sentiment of individual depositors in the country.

Moody’s acknowledges the significance of these measures but cautions that the local economy is unlikely to remain completely immune to negative trends of the global downturn, potentially limiting the government’s resources which will need to be spread among a larger number of local financial institutions and other recipients requiring state support. In addition, the asset quality of the local banking sector remains weak and largely untested, and more hostile economic conditions may potentially reveal previously latent problems that may absorb a proportion of those facilities currently expected to stem from the government.

The rating agency expects to conclude the review over the next three months.

All other bank ratings in Uzbekistan are not impacted by the reassessment of the systemic support level.