Asaka Bank's Ba3 and B2 long-term global scale local and foreign currency deposit ratings, as well as the bank's Not Prime short-term ratings were also affirmed. The outlook on all of the bank's ratings is stable.

Moody's assessment is primarily based on Asaka Bank's audited financial statements for 2010, prepared under IFRS.

According to Moody's, Asaka Bank's standalone E+ BFSR is constrained by the weaknesses in the bank's risk management and corporate governance practices. In particular, the bank has been historically involved in related-party business which accounted for 33% and 58% of its gross loan book and customer deposit base, respectively, at year-end 2010. Asaka Bank's credit concentration levels are high, with the 20 largest credit exposures comprising 193% of the bank's Tier 1 capital as at year-end 2010.

Its aggregate exposure to an individual industrial segment -- the automotive industry -- was also high at 171% of Tier 1 capital, as at the same reporting date. Additionally, due to the rapid growth of Asaka Bank's loan portfolio (which increased 1.5x in 2010, and by a further 25% in 1H 2011), Moody's expects the bank's asset quality to face increased pressure as the loan book matures and becomes more seasoned over time.

The rating agency also notes that Asaka Bank's funding base is, to a large extent, dependent on customer accounts which are mainly of an "on demand" duration: the share of time deposits -- albeit having increased to around 34% of total customer funding by year-end 2010, from 25% a year earlier -- is still low. Moreover, Asaka Bank's customer funding demonstrates extremely high concentration: the top 10 customer deposits accounted for as much as 75% of total customer accounts at year-end 2010, thus exposing the bank to sizeable withdrawals by major customers. This is mitigated by the nature of the bank's key depositors (state-controlled automotive industry players) that are related to Asaka Bank and have, to date, demonstrated a long-standing commitment to the bank.

On a positive note, Asaka Bank's standalone ratings reflect (i) the bank's entrenched market positions (especially in the corporate banking sector) in the Republic of Uzbekistan, where it ranks second in terms of assets, and (ii) its expanded geographic national coverage. Furthermore, Asaka Bank's income streams are of recurring nature, as more than 80% of its operating revenues stems from net interest income and fees and commissions.

Furthermore, Moody's explains that the risks associated with Asaka Bank's liquidity profile are somewhat mitigated by comfortable liquidity cushion (whereby 18% of its total assets as of 1H 2011 were attributed to cash and cash equivalents, and a further 10% of total assets represented interbank placements. The bank's capital levels are adequate following a substantial capital injection by the government in 2009, whereby its total capital was boosted by almost 70%, although the rating agency notes that the bank's capital adequacy has gradually come under pressure as a result of the soaring risk-weighted assets and material loan loss provisioning charges. However, Asaka Bank's capital levels are currently sufficient to withstand Moody's base-case scenario for Uzbek banks.

Asaka Bank's local currency deposit rating derives from the bank's long-term scale of B2 and incorporates a two-notch uplift to Ba3, reflecting Moody's assessment of a high probability of systemic support that is expected to be rendered to the bank, in case of distress, given (i) the 100% state ownership of Asaka Bank, and (ii) the bank's special mandate for rendering services to the state-controlled automotive industry. Asaka Bank's long-term foreign currency deposit rating is constrained at B2.