"The outlook revision reflects the deterioration in the bank’s operating environment, which is putting pressure on asset quality and profitability," said Standard & Poor’s credit analyst Elena Romanova.

The cash transfer business represents a large share of the bank’s business revenues and is under strain due to the deterioration of the economic environment in Russia, Kazakhstan, and other countries in the Commonwealth of Independent States (CIS). Kapitalbank’s asset quality is also under increasing pressure.

The ratings on Kapitalbank are constrained by its short track record in the country’s fast-developing banking market and a lack of business flexibility because of the state’s vast dominance in the domestic banking market. The bank also has a weakly diversified customer franchise and lending portfolio, a weak funding base characterized by high single-name concentrations, and an unseasoned credit portfolio challenged by high growth.

These constraints are mitigated by the bank’s good name recognition and geographic presence in Uzbekistan, shareholder support with business flows and capital; a sustainable core business performance, an adequate liquidity position, and good growth potential in Uzbekistan’s rapidly expanding market.

The negative outlook reflects our opinion that the bank’s deteriorating operating environment is likely to exert additional pressure on its asset quality and profitability.

"We might lower the ratings if the deterioration in asset quality or profitability proves to be more significant than we expect," said Ms. Romanova.

“We could revise the outlook to stable if, all other things being equal, anticipated risks do not materialize and Kapitalbank’s overall financial profile shows resilience. A positive rating action would require a significant improvement in the operating environment”, Standard & Poor’s said.