Tashkent, Uzbekistan (UzDaily.com) -- S&P Global Ratings raised to ‘B-/B’ from ‘CCC+/C’ its long- and short-term issuer credit ratings on Ravnaq-bank (Ravnaq). The outlook is stable.

The rating  agency removed all ratings from CreditWatch with developing implications, where it placed them on Dec. 7, 2018.

“The positive rating action reflects our view that the extensive amount of capital injections provided to Ravnaq by its beneficiary shareholder released regulatory pressure, enabling the bank to comply with the necessary minimum amount of authorized capital as set by the presidential decree for all banks in the country starting from 2019. Ravnaq received Uzbekistani sum (UZS) 77 billion in equity inflows in 2018 and reported share capital of UZS100 billion on Jan. 1, 2019, which is exactly the minimum requirement,” the agency said.

“In our view, shareholder capital support and their broad business relations mitigate our concerns regarding the bank’s deteriorated liquidity position. Owing to Ravnaq’s relatively aggressive loan growth in 2018, its share of liquid assets reduced to 22% of assets at year-end-2018, from 40% at year-end 2017. Although we still consider this adequate, this aggressive liquidity policy leaves the bank potentially vulnerable to unexpected funding volatility, which is the common risk factor for smaller Uzbek banks. The bank’s vulnerability is further exacerbated by its only minor market position, with limited customer base, and high sensitivity to the external environment. Positively, its influential owners’ ties and relationships partly balances these risks and helps to retain customers, in our view. We also understand that close to 35% of Ravnaq’s deposits are loyal because they are closely connected with existing shareholder,” S&P Global Ratings said.

“In addition, we still view negatively the bank’s fast growth strategy, which in the context of tight competition and developing risk management practices, could result in higher-than-expected losses. Ravnaq’s loans increased by 92% in 2018 and we expect 40%-50% growth annually in 2019-2020. At the same time, we understand that the rapid expansion is partly due to high-inflation and a more-benign operating environment (for more information see "Uzbekistan Assigned ‘BB-’ Long-Term And ‘B’ Short-Term Ratings; Outlook Stable," published on Dec. 22, 2018 on RatingsDirect, and "Uzbekistan BICRA Group Revised To ‘8’ On Improved Economic Risk Assessment; No Ratings Affected," published on Jan. 16, 2019 on RatingsDirect) against the backdrop of a rapidly expanding banking sector. In addition, we note that Ravnaq is increasing its exposures from a low base, while its total equity increased 3x during 2018, contributing substantially to the bank’s capital buffers,” the agency added.

“The stable outlook reflects our view that Ravnaq’s increased capital buffers and the owners’ commitment to support the bank if necessary, mitigates risks related to the bank’s relatively aggressive liquidity policy and its fast growth strategy over the next 12 months,” it underlined.

“We could consider a negative rating action over the next 12 months if we see further deterioration in the bank’s funding and liquidity profile, or significant asset quality deterioration,” the agency said.

“The chance of a positive rating action over the next 12 months is remote. However, we could consider an upgrade if Ravnaq’s risk-adjusted capital ratio improves and remains sustainably above 10%, with its seasoning loans not resulting in significantly higher-than-expected credit losses, all else being equal,” S&P Global Ratings concluded.