TEXT - S&P revises Orient Finans Bank outlook to positive
(The following statement was released by the rating agency) Overview -- Uzbekistan-based Orient Finans Bank's business volumes and customer base are seeing strong growth, indicating expansion of its commercial franchise. -- We are revising our outlook on Orient Finans Bank to positive from stable and affirming our 'CCC+/C' ratings. -- The positive outlook reflects our expectation that the bank will continue to develop and grow its franchise and the diversity of its customer base while keeping capitalization, asset quality, and liquidity metrics at least at current levels. Rating Action On Jan. 18, 2013, Standard & Poor's Ratings Services revised its outlook on Uzbekistan-based Orient Finans Bank to positive from stable and affirmed its 'CCC+/C' long- and short-term counterparty credit ratings. Rationale The outlook revision reflects our view of the bank's improving business position, demonstrated by an expansion of operating activity and growth of clientele. We believe that in a short time the bank has achieved a strong competitive position in the currency conversion business--a very important activity for Uzbek banks and the commodity-oriented Uzbek economy--and is growing rapidly in the money transfer business. These fee-rich activities are boosting the bank's profitability and internal capital generation capacities, and could be sufficient to stabilize capital ratios despite strong asset growth. We continue to assess Orient Finans Bank's business position as "weak," as we regard it as a start-up entity with operating history of less than 3 years. We may, however, revise it to "moderate" if the bank expands its franchise, achieves greater customer diversity, and proves the sustainability of its business strategy. We believe that improvements in the bank's business profile will likely mitigate its fairly short operating history. Standard & Poor's bases its ratings on Orient Finans Bankon its 'b+' anchor for banks operating predominantly in Uzbekistan as well as its view of the bank's "weak" business position, "weak" capital and earnings, "moderate" risk position, "average" funding, and "adequate" liquidity, as our criteria define these terms. Despite recent positive developments in the services business, Orient Finans Bank's business position is constrained by its short operating history--the bank was established in June 2010. With assets of about Uzbek sum (UZS)182.3 billion (about $93.7 million) on Sept. 30, 2012, Orient Finans Bank has a negligible market share below 1% of the Uzbek banking system's assets, and a small customer base of around 600 legal entities and 5,000 individuals. At the same time, the bank is one of Uzbekistan's top banks by volume of currency conversion operations, and we believe this niche strategy could be successful if the bank continues to manage it well. Orient Finans Bank's business activity has been growing very rapidly, with its asset base increasing by 70% and preprovision operating income under Uzbek GAAP expanding by 50% for the first nine months of 2012. The bank is gradually developing its distribution network, which allows it to engage in the money transfer business while improving the diversity of its customer base. Despite these positive developments we continue to monitor carefully other aspects of the bank's business position. Over 80% of its operating income comes from fees and commissions, and currency transactions contribute a high 50% of this amount. In our view, this makes the bank's competitive position very sensitive to foreign currency license revocation. At the same time, we believe that the development of the bank's business strategy and the dynamism of its customer base still rely heavily on the owners' and managers' business connections, increasing key man risk. Outlook The positive outlook reflects our expectation that the bank will continue to develop and grow its franchise and the diversity of its customer base while keeping capitalization, asset quality, and liquidity metrics at least at current levels. We anticipate that the bank's loan portfolio will expand by at least 50% in 2013, and that its strong competitive position in the currency conversion business will persist. We believe that continued strengthening of the bank's franchise, the proven sustainability of its business strategy, and its high earnings capacity may change our assessment of its business position from weak to moderate. Should a capital injection or sufficient internal capital generation raise our forecast for our risk-adjusted capital (RAC) ratio before adjustments for concentrations and diversification above 7%, this may also lead to a positive rating action. We might lower the ratings if the bank's currently adequate liquidity position deteriorated substantially or if rapid growth eroded capitalization to the level where our RAC ratio fell below 3% before adjustments for concentrations and diversifications. Ratings Score Snapshot To From Issuer Credit Rating CCC+/Positive/C CCC+/Stable/C SACP ccc+ ccc+ Anchor b+ b+ Business Position Weak (-2) Weak (-2) Capital and Earnings Weak (0) Weak (0) Risk Position Moderate (-1) Moderate (-1) Funding and Liquidity Average Average and Adequate (0) and Adequate (0) Support 0 0 GRE Support 0 0 Group Support 0 0 Sovereign Support 0 0 Additional Factors 0 0 Related Criteria And Research Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011 Banks: Rating Methodology And Assumptions, Nov. 9, 2011 Bank Capital Methodology And Assumptions, Dec. 6, 2010 Ratings List Ratings Affirmed; CreditWatch/Outlook Action To From Orient Finans Bank Counterparty Credit Rating CCC+/Positive/C CCC+/Stable/C (Caryn Trokie, New York Ratings Unit)
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