The affirmation balances our view of Ravnaq-bank’s capital growth lagging behind asset growth with improvements in its business standing, including more stable and diverse earnings.

“Ravnaq-bank demonstrated rapid asset growth in 2013, outperforming our expectations by expanding 110%. We believe this elevated growth will continue over the next 12-18 months, putting pressure on the bank’s capitalization and lowering its risk-adjusted capital (RAC) ratio before adjustments for concentrations and diversification to 8%-9% from 29.5% at the end of 2012. We have consequently reviewed our assessment of the bank’s capital and earnings to "adequate" from "strong," as our criteria define the terms,” the agency said.

“Our forecast takes into account rapid balance sheet expansion by a further 115% in 2014 and 45% in 2015. We expect profitability levels to remain fairly low, partially driven by the bank’s focus on market share, with return on equity not exceeding 5% over the next two years. We also factor in capital injections of Uzbek sum (UZS) 3.9 billion scheduled for the first half of 2014 and UZS2 billion for the second half of 2014,” Standard & Poor’s said.

Standard & Poor’s said: “At the same time, we believe that the bank has proved its strategy to be successful by achieving strong growth despite its failure to obtain its foreign exchange license and open new branches in 2013. In our view, however, Ravnaq-bank is likely to keep expanding in 2014 following the opening of a new branch in Tashkent, although we are unsure if the Central Bank of Uzbekistan will be willing to restore its foreign exchange license.”

“We consider Ravnaq-bank to be well positioned to capture growth potential in the Tashkent region, and its strategy to be commensurate with the bank’s regional focus. We expect gradual improvement in earnings quality and diversity in 2014 to potentially give greater support to the bank’s creditworthiness. We also believe the acquisition of a foreign license could improve the bank’s funding profile, in particular its granularity,” the agency said in a statement.

“Other factors that we incorporate into our long-term rating on Ravnaq-bank are its "adequate" capital and earnings, "weak" business position, "weak" risk position, "below average" funding, "adequate" liquidity, and ‘b+’ anchor for a commercial bank operating only in Uzbekistan,” he agency said.

Standard & Poor’s noted: “The positive outlook reflects our view that Ravnaq-bank could improve its earnings and funding profiles in the next 12-18 months. Obtaining a foreign currency license could allow the bank to strengthen ties with its clientele and support its funding profile. A license might also prompt the bank to expand its operations in the foreign trade segment of the market.”

“We might consider raising the rating if the bank managed to improve its funding profile by boosting ties with its clientele by offering a wider range of services, thereby alleviating our concerns on concentration risks in the deposit base. An upgrade would probably hinge on the bank obtaining a foreign currency license. We also assume that business expansion would not further erode the bank’s adequate capitalization,” Standard & Poor’s stated.

“We might consider a revision of the outlook to stable if the bank failed to obtain a foreign currency license in 2014, contrary to its expectations. We could consider a negative rating action if the bank failed to realize its strategy of expanding its geographic coverage, customer base, and range of products and services. An additional source of pressure on the bank’s creditworthiness could come from a decline in liquidity or solvency, with the bank’s RAC ratio falling below 7%,” the agency underlined.