OREANDA-NEWS. On November 12, 2008 Standard & Poor's Ratings Services said that it had assigned its 'B-' long-term and 'C' short-term counterparty credit ratings to Uzbekistan-based Kapitalbank. The outlook is stable.

Uzbekistan's banking market is still in the early stages of development, and dominated by state-controlled banks.

"The ratings on Kapitalbank reflect the bank's small franchise and short track record in this system, as well as the high credit risks related to its single-name and related-party lending concentrations. They also reflect the bank's unseasoned credit portfolio, which is challenged by high growth," said Standard & Poor's credit analyst Elena Romanova. "Moreover, we consider Kapitalbank's funding as weak."

Positive rating factors include the bank's good name recognition and reputation in Uzbekistan, healthy core business performance, and good growth potential in Uzbekistan's rapidly expanding economy.

As of 30 September 2008, Kapitalbank had 250 billion soums (US192 million) in assets. Its major area of activity has been money transfer operations, although the bank is increasingly developing conventional commercial lending activity. More than 50% of Kapitalbank's assets essentially represent cash, set up for money transfers. The high liquidity of assets mitigates the bank's low level of capitalization.

Risks related to the early stage of development of the overall banking and financial sector in Uzbekistan dominate Kapitalbank's risk profile. These risks primarily include an absence of developed financial markets and distorted competition.

Standard & Poor's expects the bank to continue making progress in expanding its business and commercial franchise while maintaining solid profitability and sufficient capitalization, despite the Uzbek banking and financial market's structural weaknesses and systemic risks.

"Ratings upside could follow improvement of Kapitalbank's stand-alone creditworthiness and positive developments in the country's financial market, which would give the bank better flexibility for developing its funding side and lending business. The bank would also have to maintain adequate asset quality and capitalization," said Ms. Romanova.