“The affirmation reflects our view that OFB will continue its existing operations over the next 12-18 months and maintain its current capitalization via sound earnings capacity, despite the deteriorating operational environment and the rapid asset growth we expect in 2017-2018,” the statement of the agency said.

“We see OFB as rapidly expanding, but from a relatively low base and with a small 22% share of the loan book in total assets as of Dec. 1, 2016, which partly mitigates credit risks. We also regard it as a rather small financial institution that benefits from strong customer loyalty and from having clientele with better credit profiles than other small and midsize Uzbek banks. Predominantly, this reflects the bank’s notable on- and off-balance-sheet exposures to government-owned and quasi-government companies. However, this leads to large single-name concentrations, which potentially impair business stability. The bank’s top 20 borrowers represented an 80% share of its total loan book and the top 20 depositors 50% of total deposits as of 1 September 2016,” the agency noted.

“OFB’s financial profile will show resilience to increasing economic risks over the next 12-18 months, in our view. Despite the rise in risk weights (following our revisions of Uzbekistan’s economic risk to ‘8’ from ‘7’ and our Banking Industry Country Risk Assessment to group ‘9’ from group ‘8’; see " ," published Dec. 19, 2016, on RatingsDirect) under our risk-adjusted capital (RAC) ratio calculation, we continue to view OFB’s loss-absorption capacity as moderate. We expect our RAC ratio for the bank will gradually decline to 5.5%-7.0% over the next 18 months. Our projections incorporate high growth of 110%-130% in the loan book and 40%-50% in assets next year. Such brisk expansion is balanced by sound expected profitability, which is one of the main rating strengths. We expect return on average equity to not go below 25% in 2017,” S&P said in the release.

“We view OFB’s funding as average and its liquidity as adequate. The bank’s low loan-to-deposit ratio of 35% as of Dec. 1, 2016, under local generally accepted accounting principles, reflects its currently limited lending activity and its limited dependence on market and interbank funding. The bank has an ample liquidity cushion with liquid assets (cash and cash equivalents with exposures to interbank and central bank net of restricted cash) fully covering on-demand deposits on Dec. 1, 2016,” S&P underlined.

“The stable outlook on OFB reflects our expectation that the bank’s business and financial profiles will remain broadly unchanged over the next 12 months, and that it will continue, despite its limited franchise, to maintain strong profitability,” the agency said.

“We could lower our ratings if we see signs that our projected RAC ratio for OFB will go below 3% over the next 12-18 months. This might happen due to insufficient capital build-up to match the growth in risk-weighted assets or higher-than-expected losses, which would burden profit generation, especially if we see substantial deterioration in asset quality leading to credit costs notably exceeding the market average,” S&P noted.

“We consider a positive rating action on OFB as unlikely in the next 12 months. We think its capital buffers are unlikely to improve enough in the next 12 months to support a higher rating and that both the loan book and deposit base will remain concentrated, limiting upside potential as well,” the agency concluded.