HB’s ratings reflect its relatively small franchise, high credit risks from the recent rapid growth of its loan portfolio (56% in 2008 and 7% in H109) as well as some weaknesses in the operating environment. They also take into consideration its solid profitability, low loan losses to date, reasonable capital adequacy (regulatory total capital adequacy ratio stood at 17.6% at end-H109) and cooperation with international financial institutions (IFIs). HB’s liquidity gaps have widened, although the immediate liquidity position at end-H109 was reasonable, with highly liquid assets covering customer accounts by 32%.

Upside potential for HB’s ratings is currently limited. However, further expansion and diversification of the bank’s franchise and improvements in the operating environment would be positive for its credit profile. Significant credit losses or a marked liquidity tightening could put downward pressure on the ratings.

HB is located in Andijan, Uzbekistan’s fourth-largest city and was ranked 13th by assets among Uzbek banks at end-Q109, with a market share of approximately 1.6%. The bank has a significant presence in its home region and a network of branches and outlets covering 10 out of Uzbekistan’s 14 administrative districts. The bank’s business is focused on lending to small and medium-sized enterprises (SMEs) and individual entrepreneurs. HB actively cooperates with IFIs, such as the European Bank for Reconstruction and Development (EBRD), International Finance Corporation and International Bank for Reconstruction and Development, which provide finance as well as technical assistance to the bank.

In Fitch’s rating criteria, a bank’s standalone risk is reflected in Fitch’s Individual ratings and the prospect of external support is reflected in Fitch’s Support ratings. Collectively these ratings drive Fitch’s Long- and Short-term IDRs.