The affirmations reflect the agency's acknowledgement of the bank's stable customer franchise and healthy profitability underpinned by its access to high-growth, high-yield regional SME lending and money transfer markets. In Fitch's view, the most significant limiting factor for HB's ratings is the challenging operating environment in Uzbekistan, combined with Fitch's concerns about the quality of the bank's fast-growing loan book.

In recent years, HB has been expanding quickly, outpacing its immediate competitors in terms of asset growth. In 9M10, total assets increased by 31% (2009: 35%) and gross loans grew by 29% (2009: 21%). Loans have traditionally been extended to SMEs from manufacturing, trade and food industries.

At end-9M10, reported non-performing loans (NPL) made up 3% (2009: 1%) of the gross loan book. However, this should be viewed in light of the unseasoned loan portfolio. At the same time, HB's credit profile benefits from the bank's significant capacity for absorption of loan losses. According to Fitch estimates, at end-9M10, HB was able to increase its impairment reserves up to 15% of the loan book without breaching the statutory capital adequacy limits.

HB's liquidity position has been underpinned by a substantial cushion of liquid assets (mainly in the form of unencumbered cash and short-term interbank placements). At end-9M10, they made up 24% of total assets and 34% of customer funding (2009: 27% and 41%, respectively).

HB is a private bank headquartered in Andijan, Uzbekistan, and has a substantial country-wide network. At end-H110, the bank was ranked 11th in the local banking sector by assets. Fitch has been informed that HB's main shareholder is the chairman of the bank's board of directors, who holds nearly 20% of the bank's capital. In June 2010, the International Finance Corporation purchased a 15% equity share in HB.

The rating actions are as follows:

Long-Term Foreign Currency IDR affirmed at 'B-', Outlook Stable
Short-Term Foreign Currency IDR affirmed at 'B'
Individual Rating affirmed at 'D/E'
Support Rating affirmed at '5'
Support Rating Floor affirmed at 'NF'