Tashkent, Uzbekistan (UzDaily.com) -- Moody’s Ratings (Moody’s) has affirmed Kapitalbank, JSCB’s (Kapitalbank) long-term local and foreign currency bank deposit ratings at B2, Baseline Credit Assessment (BCA) and Adjusted BCA at b2, long-term local and foreign currency Counterparty Risk Ratings (CRRs) at B1, long-term Counterparty Risk Assessment (CR Assessment) at B1(cr), short-term local and foreign currency bank deposit ratings at NP, short-term local and foreign currency CRRs at NP and short-term CR Assessment at NP(cr). The outlook on the long-term deposit ratings remains stable. 

The affirmation of Kapitalbank’s ratings and assessments takes into account the bank’s  evolving business model and aggressive business balanced by strong financial performance and good asset quality.

The bank continues to demonstrate robust profitability, with record high earnings in 2023 of UZS1.7 trillion, translating in high 4.1% return on tangible assets. Profitability is supported by  robust interest income and the bank’s rapid lending growth with increasing focus on high yielding retail loans.

Moody’s expects the bank’s capital adequacy to remain broadly stable with tangible common equity at around 10% of risk weighted assets in the next 12 months. Despite the bank’s strong internal capital generation capacity, its capital adequacy will remain constrained by rapid growth and increased pressure on risk weighted assets because of tighter regulatory standards.

Kapitalbank’s asset quality remains strong with problem loans (defined as Stage 3 lending) 1.65% of gross loans according to IFRS results for 2023. Moody’s expects asset quality to deteriorate slightly following high growth, but to remain strong. Rapid asset growth in recent years continues to pressure capital and distort financial results. In 2023 gross loans expanded by 78%. Moody’s however expects growth moderation in the next 12-18 month, constrained by the availability of capital.

The stable outlook on the long-term deposit ratings reflects Moody’s expectations that the bank’s key credit fundamentals will remain broadly stable over the next 12-18 months.

Moderation of risk appetite, evidenced by slower business expansion and turning to steady lending growth coupled with maintenance of robust profitability and solid asset quality could exert upward pressure on the banks’ BCA and the long-term ratings.

Downward pressure on the banks’ long-term ratings could materialise owing to a significant deterioration in the operating conditions that could lead to weakening of banks’ asset quality, profitability or liquidity. Rapid lending growth resulting in thinning capital buffers close to regulatory minimums could additionally warrant negative pressure on the bank’s ratings and assessments.