Fitch raises Kapitalbank ratings to B+ before withdrawal

Tashkent, Uzbekistan (UzDaily.uz) — Fitch Ratings has upgraded Kapitalbank’s Long-Term Issuer Default Ratings (IDRs) in foreign and local currency to B+ from B and raised its Viability Rating (VR) to b+ from b.

The outlook on the Long-Term IDRs was set at Stable.

At the same time, the international rating agency withdrew Kapitalbank’s ratings for commercial reasons and ceased providing rating and analytical services to the bank.

The upgrade followed an improvement in the operating environment for Uzbek banks. According to Fitch, reforms carried out in recent years have strengthened Kapitalbank’s business profile, capitalisation and liquidity, while the bank has maintained consistently high profitability.

Before the ratings were withdrawn, Kapitalbank’s assessment was based primarily on its standalone credit profile, reflected in its VR. Fitch highlighted the bank’s significant scale of operations, strong ability to build capital through internal sources and strong liquidity position.

At the same time, the agency identified factors that constrained the assessment of the bank’s risk profile, including a high concentration of its loan portfolio in one sector and Kapitalbank’s tendency to expand its business rapidly, which could potentially put pressure on asset quality.

Fitch upgraded its assessment of the operating environment for Uzbekistan’s banking sector from b/Positive to b+/Stable. The revision reflects progress in banking reforms over the past two years, particularly stronger regulation and measures to address problems associated with legacy risks.

In Fitch’s view, the combination of an improved operating environment and stable business conditions increases the resilience of banks’ credit profiles. Another supporting factor is Uzbekistan’s strong economic growth. The country’s GDP increased by 8.5% year on year in the first half of 2026.

At the end of June 2026, Kapitalbank accounted for about 6% of the Uzbek banking system’s total loan portfolio. The bank had maintained high profitability over the previous five years.

Kapitalbank’s business model, however, remained relatively concentrated. After aggressively expanding retail auto lending in 2021-2023, the bank significantly reduced lending in this segment and began developing lending to small and medium-sized businesses more actively. Despite this, auto loans still accounted for more than half of the loan portfolio at the end of the first half of 2026.

In 2024-2025, non-retail lending more than doubled, although the growth came from a relatively low base. Fitch considers lending to small and medium-sized businesses in Uzbekistan to be a higher-risk area because a significant share of such operations is conducted in foreign currency.

The share of foreign-currency loans at Kapitalbank increased from 41% at the end of 2025 to 46% at the end of the first half of 2026.

This was above the banking-sector average of 39%.

The bank’s risk profile is partly supported by a significant share of secured lending. However, it is negatively affected by the concentration of loans in one sector, high foreign-currency risks and Kapitalbank’s tendency to grow rapidly.

Fitch assessed the quality of the loan portfolio as manageable. Impaired loans accounted for 5% of the portfolio at the end of the first half of 2026, while another 6% consisted of Stage 2 loans. Most of these exposures were related to auto loans issued during the previous period of rapid expansion.

Fitch considers the risks acceptable due to the high diversification of problem loans, their predominantly local-currency denomination and the availability of liquid collateral.

High interest margins and loan portfolio growth generated significant operating profit for Kapitalbank. In 2022-2025, operating profit averaged about 5% of risk-weighted assets (RWA).

In the first half of 2026, return on equity fell to 18% from 29% in 2025. Fitch attributed the decline to high funding costs. The agency forecasts that the bank’s operating profit will be below 5% of RWA in 2026, but will remain high and significantly exceed the banking-sector average.

Kapitalbank’s capitalisation also strengthened. Fitch Core Capital increased from 14.6% at the end of 2025 to 16.4% at the end of the first half of 2026. The increase was driven by the bank’s high profitability.

Fitch expected this ratio to increase further, although moderately, in 2026. According to the forecast, internal capital generation will outpace loan portfolio growth.

The bank’s liquidity position also remained strong. The loans-to-deposits ratio stood at 82% at the end of the first half of 2026, compared with a market average of 137%. Kapitalbank therefore had significantly lower dependence on deposit funding than a number of comparable banks.

Liquid assets covered about 40% of customer funds at the end of June 2026. At the same time, the volume of wholesale debt obligations due over the following 12 months remained limited.

Following the withdrawal of the ratings, Fitch no longer applies sensitivity factors that could result in an upgrade or downgrade.

Before the ratings were discontinued, Kapitalbank’s Government Support Rating was assessed at No Support. Fitch linked this to Uzbekistan’s legislation on the resolution and restructuring of problem banks, which provides for the possibility of writing down or converting senior creditors’ liabilities into capital as part of a resolution process.

The adjustment to earnings and profitability at b+ from the implied level of bb reflected historical and forecast indicators that formed the basis for the negative adjustment.

Fitch also said that following the withdrawal of the ratings, it would no longer publish corresponding ESG Relevance Scores for Kapitalbank. Previously, the maximum level of relevance of ESG factors to the credit rating was assessed at 3. This score means that ESG factors are neutral to credit quality or have minimal influence on it.

The agency separately emphasised that ESG Relevance Scores are not directly part of the rating process and reflect the degree to which ESG factors were relevant to the rating decision.