OREANDA-NEWS. April 27, 2011. Moody's Investors Service has affirmed the stand-alone E+ bank financial strength rating (BFSR) of the Uzbek commercial bank Alokabank mapping to B3 on the long-term rating scale.

Alokabank's B1 and B2 long-term global scale local and foreign currency deposit ratings, as well as the bank's Not Prime short-term ratings were also affirmed. The outlook on all of Alokabank's long-term ratings is stable.

Moody's assessment is primarily based on Alokabank's audited financial statements for 2010 prepared under IFRS. According to Moody's, Alokabank's ratings are constrained by the weaknesses in the bank's risk management and corporate governance practices.

In particular, the bank has been historically involved in related-party business which accounted for 24% of the bank's gross loan book and 47% of its customer deposit base at YE2010.

Alokabank's credit concentration levels also remain high with the 20 largest exposures comprising 53% of the bank's total gross loan book and 141% of its Tier 1 capital as at YE2010, although Moody's observes some improvement from 70% and 215% levels, respectively, a year earlier.

Despite Alokabank's high regulatory capital levels, the bank's economic capitalisation is weak due to the accumulated investments in non-core insolvent manufacturing companies (in accordance with the Uzbek government's program, whereby local banks are encouraged to invest in the reorganising and re-equipping of weak corporates' production sites before these entities are sold to third-party investors) amounting to 30% of the bank's Tier 1 capital at YE2010; and the bank's investments in fixed assets totalling 60% of its Tier 1 capital at the same reporting date.

On a positive note, Alokabank's ratings are supported by the sustainable and robust quality of its loan book, with no overdue or restructured loans as at YE2010. The bank's individually impaired loans as reported under YE2010 IFRS accounted for 2.26% of the gross loan portfolio and were fully covered by loan loss reserves of 3%.

Moody's observes that this good performance of the loan book, as well as Alokabank's active involvement in settlement and money transfer transactions for its corporate and retail clients support the bank's recurring and healthy income streams, which mainly consist of interest income and fees and commissions (43% and 39% of total operating income, respectively, in 2010).

Moody's also notes that Alokabank's industry concentration levels have somewhat improved over the recent years, with the bank's largest industry exposure (to the telecommunication sector) now accounting for 18% of the total loan book compared to 25% at YE2009; nevertheless, the rating agency would like to see more sustainable trends proving the bank's diversification to other segments of economy.

Moody's also views favourably Alokabank shareholders' continuous capital support to the bank. During 2010, a 15 billion soums (USD 9.15 million) capital injection was completed which accounted for 35% of the bank's pre-injection total shareholders' equity, and further capital injections are expected to be fulfilled by the shareholders over the coming two years.

Alokabank's local currency deposit rating derives from the bank's long-term scale of B3 and also incorporates a two-notch uplift to B1, reflecting the high probability of systemic support expected to be rendered to the bank, in case of distress, in accordance with the bank's special mandate for rendering services to the state telecommunication industry and the cumulative direct and indirect state ownership in the bank's capital - accounting for more than 80%.

Alokabank's long-term foreign currency deposit rating is at B2. Headquartered in Tashkent, Uzbekistan, Alokabank reported total assets of USD 206 million and net income of USD 3.9 million as per the audited IFRS statements as of 31 December 2010.