The affirmation of the banks' IDRs at 'B-' reflects weaknesses in Uzbekistan's operating environment, the banks' limited scale and franchise, and their currently rapid loan growth. The banks' ability to service foreign currency obligations, in particular those off balance sheet relating to foreign trade transactions, may also be weakened by foreign exchange regulation in Uzbekistan.

TB's ratings also reflect its significant reliance on funding provided by the Uzbek Commodities Exchange (UCE) and other related parties (totally 51% of non-equity funding at end-H111). HB's exposure to foreign currency liquidity risk is currently greater, in Fitch's view, due to its more active participation in trade finance operations.

At the same time, the banks' IDRs also reflect their currently reasonable financial metrics with respect to capitalisation, local currency liquidity and reported asset quality. Profitability has also been solid through the cycle, supported by high lending margins and fee income earned on money transfers and trade finance. Funding is sourced primarily from local customer deposits.

Fitch has withdrawn HB's ratings as the bank has chosen to stop participating in the rating process. Therefore Fitch will no longer have sufficient information to maintain the ratings. Accordingly, Fitch will no longer provide ratings or analytical coverage for HB.

HB and TB are small Uzbek privately-owned banks. HB was founded in 1991 and has focused on commercial banking operations with predominantly corporate clients in the city of Andizhan and the densely-populated Fergana Valley.

TB was founded in 1994 and since then has remained tightly linked with the UCE. TB's core operations are in the city of Tashkent, Uzbekistan's capital.