Tashkent, Uzbekistan (UzDaily.com) -- A delegation of international rating agency Standard & Poor's paid a visit to Uzbekistan at the end of August. The delegation included S&P Financial Institutions Director Ekaterina Trofimova, associates Mikhail Nikitin and Sergei Voronenko.

Standard & Poor's is one of the authoritative international rating agencies of the world. The world’s foremost source of credit ratings, indices, investment research, risk evaluation and data, Standard & Poor’s provides financial decision-makers with the intelligence they need to feel confident about their decisions. Standard & Poor's employs over 10,000 people, including 1,500 analysts, who work in offices in 23 countries.

Standard & Poor's has been presenting its services to banking sector of Uzbekistan since 2008. Currently, S&P assigned credit ratings to four banks of Uzbekistan – Kapitalbank, People’s Bank of Uzbekistan, National Bank of Uzbekistan for Foreign Economic Activity and Uzpromstroybank.

Goals of the visit

Analysts Mikhail Nikitin said in interview to Uzbekistan Daily: “Part of rating process is annual meeting with each bank, which has rating of Standard & Poor’s. Naturally, the working contacts with banks take place more frequently, but remotely. Such full rating meeting in places, we organize once a year.”

He said: “Within current visit to Tashkent we held talks with banks and regulators – Central Bank and Finance Ministry of Uzbekistan, as it is important for us both current conditions of concrete bank and system as a whole.”

Within the visit, the delegation also participated at the methodical seminar, organized by S&P and Central Bank of Uzbekistan. Participants familiarized with credit rating assignment methodology, Nikitin said.

Condition of Uzbekistan’s banking system

Speaking about current state of banking market of Uzbekistan, S&P analysts singled out two important moments. First, relative isolation of Uzbekistani banks from international markets and low external debts of the banks compared to other countries, including Russia, Ukraine and Kazakhstan. These protected banking system from negative processes, which occurred in global markets, he added.

“Second moment, which also has positive character, is accurate work of the Uzbekistani government on support and regulation of banking system. As we understand, regulator carries out continuous, almost day-to-day control over banking system. Overall, history of this regulation was positive as there was no default on Uzbek banks’ external debts compared, for example with banks in Kazakhstan,” he underlined.

“However, these factors do not guarantee that banking system of Uzbekistan is protected from risks. Risks exist and they are connected, first of all with assets quality,” Nikitin said.

Economic development of Uzbekistan

Nikitin said: “Uzbekistan is seeking own special way of economic development, oriented in significant level to internal demand, its stimulation and diversification of economy. It is clear that there are achievement s in these directions as processing industry is developing fast.”

“We observe several risks related with that fact that main trade partners and consumer of goods, produced in Uzbekistan, are countries, economies of which were seriously affected by crisis. Automobile industry can serve as one of such examples, which suffered from sharp export decreases to Russia in 2009. As we see no, these volumes are recovering slowly. However, the situation showed that Uzbekistan’s economy, as a whole, integrated into global economy – financial market in lesser level and production sector in more level. So, it is impossible to nullify negative impact of problems, which are arising in partner counties. ”

Analyst noted: “If we speak about separate figures, it is important that Uzbekistan is keeping positive growth rate. According to official data, the GDP of Uzbekistan grew by 8.1% in 2009. Taking into account that there was no downfall even in pick of crisis, undoubtly this positively characterizes economic policy of the Uzbekistani government.”

“Second moment is that banking system of Uzbekistan, one of few in the world, is increasing crediting. This is taking place due to government’s stimulation of economy directed at decreasing crisis impact,” he said.

“Key factors, which will determine further development of banking sector of Uzbekistan in many respect, will be assets quality, thus financial conditions of debtors and how they will service loans. Assets quality will be principle for Uzbekistani banks in following years as well as after several years of fast growth of crediting, usually problems are accumulated,” Nikitin said.

Mikhail Nikitin said that in recent months Uzbekistan was able to manage with the first crisis phenomenon through transferring bankrupt enterprises to management of the bank. “Time will be needed to evaluate real effectiveness of this method of enterprise rehabilitation. In some countries, transfer of production assets to banks was not successful.”

“We have not much statistics and historic data, which would allow to forecast return from mass investments, which are carried out through banking system and Fund for Reconstruction and Development of Uzbekistan. In all positive moments, we see some risks, which we, as rating agency, should taking into account,” analyst said.

National scale

International rating organizations introduce national scales in some countries, where they work. National scales are created for satisfaction of needs of issuers, guarantors, business partners, financial mediators and investors, working in financial market of concrete country. Scale is a tool for solvency assessment of issuers and their debt liabilities in context of financial market of this country. Based on national scale, the agencies can assign credit rating of issuer and credit rating of debt liabilities.

Ekaterina Trofimova said that S&P developed and introduced national scales in some countries, in developing states. She said national scales were introduced in Russia, South Africa, Israel, Kazakhstan, in some countries of northern Africa, Middle East.

Trofimova noted: “We do not expel opportunity to introduce special national scale for Uzbekistan. But we need large selection of rated organizations. Currently, we assist rating only to four banks. We are sure that this is not limit. We hope that number of rated banks and companies will rose as market opens and develops. This will promote and develop national scale as well.”