Tashkent, Uzbekistan (UzDaily.com) -- S&P Global Ratings today affirmed its ‘CCC+/C’ long- and short-term issuer credit ratings on Turkiston Bank. The agency also revised our outlook on Turkiston to stable from negative. 

S&P Global Ratings revised the outlook on Turkiston to stable from negative to reflect our reduced concerns on further deterioration of credit standing.

“While asset quality remains poor, with nonperforming loans standing at about 70% as of Jan. 1, 2022, this is an improvement from over 80% as of June 30, 2021. We see some gradual workout of problem loans via foreclosure and repayment. We note stabilization of the bank’s management team after significant changes at the beginning of 2021,” the agency said.

Turkiston is still in breach of regulatory liquidity ratios. 

“The bank has restored liquidity coverage ratios above regulatory requirements, but stable funding ratios are still below the minimum level. We understand that Turkiston is moving ahead with the roadmap agreed with the regulator. While reported capital ratios are above the regulatory minimum, we believe that the bank needs significant additional provisioning. We understand that Turkiston’s owners plan to inject additional capital in 2022 themselves or by attracting new investors,” S&P Global Ratings underlined. 

The ratings on Turkiston continue to reflect  concerns regarding the business model and its sustainability in the current economic environment. 

S&P Global Ratings still believes that Turkiston is currently vulnerable and is dependent upon favorable business, financial, and economic conditions to meet its financial commitments. 

The recent rapid spread of the omicron variant highlights the inherent uncertainties of the pandemic as well as the importance and benefits of vaccines.

“Although the risk of new, more severe variants displacing omicron and evading existing immunity cannot be ruled out, our current base case assumes that existing vaccines can continue to provide significant protection against severe illness. Furthermore, many governments, businesses, and households around the world are tailoring policies to limit the adverse economic impact of recurring COVID-19 waves. Consequently, we do not expect a repeat of the sharp global economic contraction of second-quarter 2020. Meanwhile, we continue to assess how well each issuer adapts to new waves in its geography or industry,” the agency said.

The stable outlook reflects our view that Turkiston’s business model and franchise remain vulnerable to liquidity stress in case of unexpected funding pressures, but also the bank’s ability to continue to operate as a going concern since we downgraded it to the ‘CCC’ category in January 2021.  

S&P Global Ratings could lower the ratings over the next 12-18 months if the bank’s liquidity deteriorates, with clear risk of default scenarios, and it is not fully compensated by support in a timely manner, either from the bank’s shareholder or the central bank as a lender of last resort.

The agency could consider a positive rating action in the next 12-18 months if Turkiston is able to sustainably restore its liquidity, clean its balance sheet from nonperforming assets, and increase its capital base, thus ensuring the sustainability of its franchise over the medium term.