Ravnaq-bank was granted a foreign currency license on 26 December 2015, after the regulator revoked the license in 2011.

“The rating action on Ravnaq-bank reflects that we consider this to be an important positive development for a bank operating in Uzbekistan. We think that obtaining the licence will enable Ravnaq-bank to offer its clients foreign currency operations it was not able to service before. Eventually, this should help the bank expand its client base and increase its business volume, as well as broaden and diversify its deposit base,” the agency said.

“Ravnaq-bank plans to open two branches in addition to its existing branch, which should further help to improve its business volumes and access to retail deposits,” Standard & Poor’s underlined.

“However, owing to its small size and limited market share, we consider that Ravnaq-bank will remain vulnerable to the challenging operating and economic environment in Uzbekistan and face tough competition from better established and larger banks,” the agency added.

“According to our methodology, the current rating on the bank suggests that we consider the bank to be vulnerable, at present, and dependent on favorable business, financial, and economic conditions to meet its financial commitments. Still, the bank may not face a near-term credit or payment crisis,” Standard & Poor’s said.

“The stable outlook on Ravnaq-bank incorporates our view that over the next 12 months the bank will likely improve its business position and funding base thanks to its recently obtained foreign currency license. However, this positive impact will likely be balanced by risks related to a reduction in capital adequacy (based on our measure under Standard & Poor’s risk-adjusted capital framework) amid the increasingly complex economic conditions in the region and strong competition from large players,” the agency said.

“We might consider a negative rating action if we observed that the bank’s asset quality deteriorated more than we currently expect, and, in the absence of capital support from shareholders, our forecast risk-adjusted capital ratio fell below 7%. Deterioration in its funding and liquidity metrics might also trigger a negative rating action,” it added.

“We consider a positive rating action remote at this stage. However, we might consider raising the ratings if Ravnaq-bank managed to strengthen and diversify its sustainable funding base and significantly expand its business, despite deteriorating economic conditions in the region and competitive pressure,” Standard & Poor’s concluded.