The affirmation reflects the bank’s stable business profile as the fourth-largest bank in Uzbekistan, and its pivotal role in collecting retail deposits and acting as the country’s exclusive manager for pension fund deposits. This gives Halk Bank a better funding profile than its peers. At the same time, the bank’s capital position is eroding as assets are expanding quicker than profits and capital injections have not yet materialized.

“The ratings reflect the ‘b+’ anchor for a bank operating primarily in Uzbekistan, as well as Halk Bank’s "adequate" business position, "weak" capital and earnings, "adequate" risk position, "above average" funding, and "adequate" liquidity, as our criteria define these terms. The stand-alone credit profile (SACP) is ‘b+’. Although we do not rate Uzbekistan, the ratings on Halk Bank are constrained by our assessment of the sovereign’s creditworthiness,” the agency said.

“In our view, Halk Bank is of "high" systemic importance in the Uzbek banking sector. We also consider the bank to be a government-related entity with a "very high" likelihood of support from the Republic of Uzbekistan. This reflects our view of Halk Bank’s "very important" role for the Uzbek government due to its 27% share in retail deposits and "very strong" link with the sovereign through its shareholding structure split between the Ministry of Finance and the Central Bank of Uzbekistan. However, given our assessment of the sovereign’s creditworthiness, which is based on publicly available information, we include no notches of uplift in the ratings,” Standard & Poor’s Ratings Services said.

“The stable outlook reflects our expectation that continued state ownership and ongoing support from the government, notably via capital increases, should offset any potential increase in credit risks due to rapid growth over the past several years,” the agency said.

“We believe that the creditworthiness of Uzbek banks, including Halk Bank, and that of the sovereign are very closely linked. We are therefore unlikely to raise the ratings on the bank if we don’t see an improvement in the sovereign’s creditworthiness, which we currently consider to be a rating constraint. In our view, the likelihood of an upgrade based on improvements in some bank-specific factors appears limited in the next two years,” Standard & Poor’s Ratings Services said.

“A deterioration of the bank’s capital adequacy represents the main risk for its financial profile and creditworthiness. We could lower the ratings on the bank if the government was unable or unwilling to support the bank’s capital base and failed to inject fresh capital within the next 12 months. Other factors that could lead us to take a negative rating action are weakening asset quality and uncontrolled credit expansion in risky sectors,” the agency underlined.