Kapitalbank Ratings Raised To ‘B-/B’ From ‘CCC+/C’; Outlook Stable
Tashkent, Uzbekistan (UzDaily.com) -- S&P Global Ratings raised its long- and short-term issuer credit ratings on Uzbekistan-based Kapitalbank to ‘B-/B’ from ‘CCC+/C’. The outlook is stable.
“Kapitalbank’s regulatory capital adequacy ratio (CAR) has gradually improved over the past 12 months. Also, we believe that the bank could obtain timely extraordinary government support in case of need, as we view it as possessing moderate systemic importance for the Uzbek financial sector,” the agency said.
“We believe that Kapitalbank’s risks of a CAR breach and consequent negative regulatory interventions are significantly lower than year ago. The bank’s CAR was 13.7% on March 1, 2019, versus 12.6% as of April 1, 2018. We note that the minimum requirement is now 13% now, compared with 12.5% in 2018,” he said.
“Despite the increase in regulatory capital buffers, we still consider Kapitalbank’s overall capital policy as aggressive. This is because CAR is still only marginally (within 100 basis points) above the minimum requirement, and we expect it to remain flat over the next 18 months due to the bank’s business model, which is characterized by a relatively low level of regulatory capitalization. In addition, we understand that the ratio of the bank’s total equity to fixed assets was about 90% as of March 1, 2019. This justifies our view of potentially high equity volatility, because the value of fixed assets may vary. Kapitalbank’s earnings, which are subject to fluctuations with sustainable track record of one-off events, further exposes the bank’s equity to potentially high volatility. We believe this is in line with our ‘ccc+’ assessment of the bank’s stand-alone credit profile (SACP),” the rating agency underlined.
“However, the risks are partially balanced by potential extraordinary government support if needed. We regard Kapitalbank as having moderate systemic importance within the Uzbek banking system, since the bank is a market leader in terms of foreign currency retail deposits, serving about two million individual depositors. Kapitalbank’s market share in terms of retail deposits was about 11% on Jan. 1, 2019, which is comparable with that of large state-owned banks. We therefore apply a one-notch uplift to our assessment of Kapitalbank’s SACP for potential extraordinary government support,” S&P Global Ratings said.
“The bank’s sound liquidity cushion and deposit base will likely remain one of the key rating strengths over the next 12 months. Furthermore, we have not observed negative trends in funding and liquidity over the past 18 months, which is contrary to many other local peers. Kapitalbank’s stable funding ratio was 136% and net broad liquid assets to short-term customer accounts were 32% on March 1, 2019, indicating a relatively sustainable funding and liquidity profile, in our view,” the agency said.
“The stable outlook reflects our view that Kapitalbank will likely continue complying with regulatory capital requirements and maintain a stable funding base over the next 12 months. We also incorporate our assumption that the bank will remain a moderately systemically important financial institution in Uzbekistan,” S&P Global Ratings noted.
“A negative rating action could follow if we see pronounced funding and liquidity pressures, in line with the uncertainty regarding potentially specific-default scenarios over the next 12 months. Signs of diminishing extraordinary government support or failure to meet regulatory CAR requirements over the next 12 months, with subsequent risks of negative regulatory interventions, may also prompt a downgrade,” it added.
S&P Global Ratings would consider a positive rating action if the agency saws sufficient capital build-up and a remote risk of Kapitalbank violating the regulatory CAR with the risk-adjusted capital ratio being higher than 7% over the forecasted 12-month horizon.