While ratings of the S&P Global Ratings on Uzbek banks remain low relative to those on their international peers, most have stable or positive outlooks, according to a report published today by S&P Global Ratings titled “The Outlook For Uzbek Banks Is Stable Despite High Competition And Problem Loans”.
“Overall, the Uzbek banking sector is managing the impact of the COVID-19 pandemic, and we believe that it will remain resilient to the pandemic’s tail effects, including elevated levels of nonperforming loans,” said S&P Global Ratings credit analyst Victor Nikolskiy.
“Competition in the banking sector is high, and we expect it to remain so in 2021-2022, with small and midsize banks suffering the most. However, the profitability of the largest state-owned banks will continue to support the profitability of the whole sector,” Mr. Nikolskiy added.
The ongoing macroeconomic recovery and the low penetration of consumer finance in Uzbekistan will support solid demand for new lending in coming two years. Although nominal lending growth will fall from extremely high levels, it will remain high compared with other countries in the Commonwealth of Independent States, at 20%-25% on average over the next two years.
On average, Uzbek banks’ capital and earnings are positive or neutral for the ratings, although we expect a modest decline in capitalization ratios in 2021-2022, as banks continue to grow and build additional reserves.
The funding profiles of Uzbek banks are largely stable, thanks to growth in corporate and retail deposits and a recent increase in external funding. We believe that banks will continue to rely on domestic funding sources, including government funding, with external funding continuing to grow in importance.
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