TASHKENT

S&P Global Ratings affirmed its ‘B-’ long-term issuer credit rating on Uzbekistan-based Ravnaq Bank (Ravnaq). The outlook remains negative.

The agency affirmed its ‘B’ short-term issuer credit rating on the bank.

S&P said that Ravnaq’s low profitability and provisioning needs undermined its capitalisation.

“We anticipate the bank will face pressure from substantial loan loss provisions, stemming from its low loan book quality and earnings, which are insufficient to cover expected losses,” S&P said in a report.

“As a result, we project Ravnaq will be loss-making in 2021, and our risk-adjusted capital (RAC) ratio will decline to 8.0-8.1 percent. We have therefore revised our capital and earnings assessment to adequate from strong. The bank’s profits will remain volatile due to its small size, low operating efficiency, and potential further losses related to the pandemic.”

Ravnaq was hit harder by the COVID-19 pandemic than most of its domestic peers but problem loans are gradually decreasing.

Over the past year, the bank had to restructure a substantial part of its loan book, mainly driven by pandemic-related factors. This increased pressure on credit losses and limited its business growth prospects. Problem loans peaked at 37 percent of gross loans on September 1, 2021, well above the 6 percent average for the system.

“That said, we note the gradual recovery of the loan book, driven by the return of some problem borrowers to normal payment schedules and limited new problem loans this year. Therefore, we expect Ravnaq’s problem loans to decline to about 14-16 percent of total loans in the next 18 months, which is still higher than for most peers,” S&P said.

The agency said that the bank’s significant concentrations, with its 20 largest loans comprising 64 percent of total loans on October 1, exacerbated the risks of sharp loan book deterioration.

Ravnaq’s current liquidity buffers are sufficient to service its needs, however, further delays in loan repayments could disrupt the liquidity position.

The bank’s liquidity position has been somewhat volatile, related to both unexpected delays in inflows from loan repayments and its opportunistic liquidity policy this year.

The liquidity buffer stabilised in November 2021, following several large problem loan repayments and new corporate deposits.

S&P said that the negative outlook reflected the bank’s still high amount of problem loans, low earnings, and high loan concentrations. In addition, it incorporates downside risks to the bank’s liquidity position.

“We could lower the rating over the next six-to-12 months if we see further asset quality deterioration or the liquidity buffer weakens, for instance via unexpected high deposit outflows,” the agency said.

S&P added that an upgrade was a remote possibility, h0wever, the agency might revise the outlook to stable if Ravnaq’s asset quality strengthened and it maintained sufficient liquidity buffers with no rise in deposit volatility.