Fitch rates Uzbekistan’s Microcreditbank at ’B-’
Tashkent, Uzbekistan (UzDaily.com) --
Fitch Ratings has assigned on 18 March Uzbekistan-based Microcreditbank (MCB) a Long-term Issuer Default Rating (IDR) of ’B-’ (B minus) with a Stable Outlook. A full list of rating actions is provided at the end of this comment.
MCB’s Long- and Short-term IDRs are underpinned by potential support from the Uzbek authorities, which directly control an 83% stake in the bank. Given the bank’s important social function in providing microloans to individual entrepreneurs and SMEs and the dominance of state resources in MCB’s funding structure, Fitch believes that there would likely be a quite high propensity of the authorities to support MCB, in case of need.
However, in light of the Uzbek sovereign’s own credit profile, this support cannot be relied upon. An improvement in Uzbekistan’s sovereign risk profile could generate upward pressure on MCB ratings, while a deterioration of sovereign creditworthiness, combined with a weakening of MCB’s capital adequacy or liquidity position, may result in a downgrade of the bank’s IDRs.
The Individual Rating reflects MCB’s small size, narrow franchise, undiversified funding sources, fast growth of the loan book and high concentration of borrowers in a single industry, as well as certain weaknesses in the operating environment. At the same time, the rating considers MCB’s currently comfortable capitalisation and the relative stability of its funding base.
Upside for the Individual Rating is currently limited, although building a track record and showing credit quality through the cycle would be positive for MCB’s stand-alone profile. Significant credit losses combined with marked reductions of capital ratios would exert downward pressure on the Individual Rating.
MCB was established in 2006, on the basis of Tadbirkorbank, with a main objective of promoting the development of microfinance services, particularly in the rural areas of Uzbekistan. At end-2008, the Ministry of Finance retained a 51% stake in the bank, and another 32% was held by the Central Bank.
At end- 2008, MCB was ranked eighth in the country, holding about 2.5% of sector assets. The bank has a country-wide operating footprint through 79 branches and 270 mini-banks which are located in all the administrative districts of Uzbekistan.
The rating actions are as follows:Long-term IDR: assigned at ’B-’ (B minus); Outlook Stable Short-term IDR: assigned at ’B’Individual Rating: assigned at ’D/ E’Support Rating: assigned at ’5’Support Rating Floor: assigned at ’B-’ (B minus).