The rating action reflects Fitch's concerns about Agrobank's financial position, which in particular may be negatively affected by a potential contingent liability resulting from an ongoing litigation process. The bank has not yet published its IFRS accounts for the financial year 2010, and Fitch understands that the delay was primarily caused by Agrobank's inability to determine the appropriate provision for the contingent liability. While there is significant uncertainty about the extent of any losses the bank may face, in Fitch's view, the potential negative impact from the contingent liability may be material enough to significantly undermine Agrobank's already weak capital position.

Fitch notes that the bank has traditionally operated with relatively low capital adequacy ratios, which fluctuate during the year due to the seasonal pattern of the bank's lending business. Since June 2011, Agrobank has breached the minimum regulatory capital adequacy level (10%). The breaches have been quite marginal: at end-9M11 the capital ratio was 9.6%, and the bank became compliant with regulatory requirements after a substantial loan repayment in October (the ratio increased to 12.3% at 20 October 2011). However, internal capital generation has been weak, reflecting the bank's role as a government instrument for socio-economic policy, and in 9M11 the bank recorded small operating losses resulting from increased payroll expenses and some growth in impairment charges.

Agrobank's management has informed Fitch about a potential 300 bn soums equity injection for the bank being discussed at the government level. The recapitalisation process may start before the year end, although the bank expects that this will be executed in several steps during one year.

Fitch will resolve the RWN after receiving more information about the contingent liability and the expected recapitalisation schedule and assessing whether the planned injection will sufficiently rectify any weakening of Agrobank's capital position related to the contingent liability.

The rating actions are as follows:

Long-term foreign currency IDR: 'B-' placed on RWN
Long-term local currency IDR: 'B' placed on RWN
Short-term foreign and local currency IDRs: 'B' placed on RWN
Viability Rating: 'b-' placed on RWN
Individual Rating: 'D/E' placed on RWN
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'