Tashkent, Uzbekistan (UzDaily.com) — Moody’s Ratings has assigned the following ratings to Uzbekistan’s Octobank JSC: long-term deposit ratings in local and foreign currencies at B3, baseline credit assessment (BCA) at b3, adjusted BCA at b3, long-term counterparty risk assessment (CR Assessment) at B2(cr), long-term counterparty risk ratings (CRRs) in local and foreign currencies at B2, long-term issuer ratings in local and foreign currencies at B3, short-term deposit ratings, CRRs, and issuer ratings in local and foreign currencies at Not Prime (NP), as well as short-term counterparty risk ratings at NP(cr). The outlook for the long-term deposit and issuer ratings remains stable.

The long-term deposit and issuer ratings of Octobank at B3 reflect its baseline credit assessment of b3, with no government support considered, as it is a private bank with a market share of only 0.4% of assets in Uzbekistan.

Key factors limiting Octobank’s BCA include its niche business model, significant reliance on remittances, concentrated short-term corporate deposits, aggressive growth strategy, and dependency on key personnel. The BCA of b3 indicates strong capitalization and liquidity, good asset quality, and high profitability.

As a payment service provider, Octobank maintains a significant portion of its assets in liquid form. As of the end of 2024, liquid assets account for nearly 80% of total assets, while the net loan portfolio makes up only 7% of assets, reducing the bank's credit risks compared to competitors.

The bank’s securities portfolio at the end of 2024 was 31% of total assets, primarily consisting of government bonds issued by the government of Uzbekistan and the Central Bank of Uzbekistan in national currency. Cash and cash equivalents, along with interbank funds, accounted for 28% and 20% of total assets, respectively. Most of these funds are placed with the Central Bank of Uzbekistan and the country’s largest state-owned banks.

At the end of 2024, Octobank’s non-performing loans (Stage 3 classification) represented less than 3% of total loans, following significant recoveries and repayments of problem loans from 2022 to 2024. These loans are small in size and well-secured by tangible collateral. The loan portfolio is expected to expand significantly over the next 12-18 months, as the bank aims to diversify its products and revenue sources.

Octobank’s capital adequacy remains stable, which is a significant credit strength. As of the end of 2024, the total capital to risk-weighted assets (RWA) ratio stands at 29.3%. Regulatory capital ratios are also high: the Tier 1 capital ratio is 38%, and the total capital adequacy ratio is 48.3%, significantly exceeding the minimum regulatory requirements of 10% and 13%, respectively. This level of capital provides the bank with a sufficient buffer to cover unforeseen credit and market losses and allows for rapid asset growth in the coming period.

In 2023, Octobank updated its business model following changes in its shareholder structure and utilized its payment infrastructure, along with a long-term partnership with HUMO, Uzbekistan’s national processing center, to facilitate cross-border remittances. The bank reported a net profit of 45 billion soums in 2023, which corresponds to a return on assets (ROA) of 2.2%. In 2024, net profit is expected to reach 144 billion soums, with an ROA of 4.8%. This profitability is driven by significant revenues from cross-border remittances, which accounted for 87% and 83% of net income in 2023 and 2024, respectively.

Strong profitability is expected to continue, with the contribution from net interest income gradually increasing.

Octobank is primarily funded by deposits. As of the end of 2024, customer deposits make up 89% of the bank’s total liabilities, of which 81% are corporate deposits, with 71% of these being current accounts. Volatility risks are also heightened due to a high concentration on a few large clients, with the top five clients accounting for 58% of total customer funds or 52% of the bank’s liabilities. The risk of deposit outflows is mitigated by the bank’s substantial liquid asset buffer, which stands at approximately 80% of its balance sheet as of the end of 2024. Despite the anticipated increase in lending, the bank is expected to remain highly liquid over the next 12-18 months.

Moody’s applies a one-notch downward adjustment due to Octobank’s limited business diversification and concentrated client base. Furthermore, due to the bank’s small size and the nature of its business model, its financial results can quickly change under the influence of an aggressive growth strategy or management decisions.

This decision also reflects the impact of environmental, social, and governance (ESG) factors. The bank’s management risk assessment is high, which is reflected in its Governance Profile Score (IPS) of G-4. These risks are associated with ownership concentration in the hands of the CEO, limited experience with the new business model, and potential difficulties with the aggressive growth strategy. These factors contributed to a two-notch negative adjustment for corporate behavior, which also influenced its ESG credit impact score of CIS-4.

The stable outlook for Octobank’s long-term deposit and issuer ratings indicates that its credit profile is expected to remain stable over the next 12-18 months. CIS-4 for Octobank means that the bank’s rating is lower than it would be otherwise, primarily due to governance risks, such as ownership concentration in the hands of the CEO, limited experience with the new business model, and potential difficulties with the aggressive growth strategy.

Environmental and social risks have not significantly affected the rating at this time.

The bank’s ratings may be downgraded, or the outlook may be revised to negative, if the bank loses its competitive advantage in payment services or if its financial performance deteriorates, reducing its ability to generate profits. A downgrade could also be associated with liquidity risks.

Octobank’s baseline credit assessment and deposit ratings could be upgraded in the next 12-18 months if the bank strengthens its client base, diversifies its product and revenue mix, and delivers stable financial performance.