Fitch Ratings has affirmed
The bank's Viability Rating (VR) has been affirmed at 'b'. A full list of rating actions is below.
Key Rating Drivers
Ipoteka's Long-Term IDRs are based on potential support from its parent bank,
The bank's 'b' VR reflects recovering profitability, modest capitalisation, high potentially impaired loans and reliance on wholesale funding. These weaknesses are balanced by improving governance quality and lower-than-average risk appetite and dollarisation.
IDRs Capped by Country Ceiling: The bank's SSR and Long-Term Foreign-Currency IDR are constrained by
State-Dominated Economy, Structural Weaknesses:
Strengthening Risk-Management Framework: Post-acquisition, Ipoteka has started aligning its risk-management framework with OTP's. We believe this should improve provisioning and the quality of new loans in the medium term, making the bank less exposed to seasoning risks. The bank's FX-adjusted loan book growth was a modest 11% in 2023 (sector average: 16%) and we expect it to remain subdued in 2024, due to modest capital buffer. Loan dollarisation (end-2023: 28%) remained well below the sector average of 45%.
High Impaired Loans; Good Coverage: Ipoteka's impaired loans increased to 10.1% of gross loans at end-1H23 (end-2022: 9.2%), while Stage 2 loans doubled in size (end-1H23: 19% of gross loans). This was driven by the corporate and SME loan book seasoning and the adoption of OTP's stricter loan classification criteria. The latter resulted in higher reserve coverage ratio 114% at end-1H23 (end-2022: 74%). We estimate the impaired loans ratio could have increased further to about 19% by end-2023, before reducing moderately in 2024, due to recoveries and loan growth.
Provisioning Costs Drive Losses: The bank reported a UZS586 billion (equivalent of
Injection Supports Capitalisation: Ipoteka's
State Funding Prevails; Reasonable Liquidity: State-related funds (including deposits and loans for financing subsidised mortgages) remains the core source post privatisation, comprising 45% of total liabilities at end-2023. Market borrowings added another 27%. The liquidity buffer was adequate (end-2023: 12% of total assets) and covered non-state deposits by 60%, while the bank can rely on OTP to obtain liquidity, if needed.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Ipoteka's support-driven IDRs could be downgraded following a downgrade of
The VR could be downgraded on further deterioration of the bank's asset quality, leading to the continued loss-making performance and the FCC ratio being sustainably below 10%. Pressure on capitalisation from rapid lending growth and aggressive dividend payments could also be credit negative, although Fitch does not consider this as baseline scenario.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
The IDRs could be upgraded if the Country Ceiling was upgraded, provided Fitch's view that ability or propensity of OTP to provide support to the subsidiary remains the same or improves.
An upgrade of the bank's VR would require notable improvements in the Uzbek operating environment, along with a continued reduction in the bank's legacy asset-quality risks. The bank's VR could also be upgraded, following the sustainable record of superior asset quality and recovery of profitability to above historical average, amid strengthening of capitalisation.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Ipoteka's senior unsecured debt rating is in line with the bank's 'BB-' Long-Term Foreign-Currency IDR.
The bank has issued a five-year US dollar-denominated Eurobond and a three-year soum-denominated Eurobond. Both issue ratings are anchored to Ipoteka's Long-Term Foreign-Currency IDR, as all settlements are in US dollars. For the soum-denominated issue, settlements are in US dollars at the exchange rate set by the
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The bank's long-term debt rating is sensitive to changes to its Long-Term IDRs.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
Ipoteka's IDRs are driven by potential support from OTP.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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