TEXT - S&P revises Orient Finans Bank outlook to positive

Fri Jan 18, 2013 10:35am EST

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(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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