OREANDA-NEWS. On November 12, 2008 Standard & Poor's Ratings Services assigned its 'B' long-term and 'B' short-term counterparty credit ratings to National Bank for Foreign Economic Activity of the Republic of Uzbekistan (NBU). The outlook is stable.

These are the first ratings Standard & Poor's has assigned to a bank in the Republic of Uzbekistan (not rated).

"The ratings on 100% state-owned NBU are constrained by high credit risk, due to large single-party concentration, the legacy of state-influenced lending, and high foreign-currency risk. Weak enterprise-risk management and profitability also constrain the ratings," Standard & Poor's credit analyst Eugene Tarzimanov said.

The ratings are supported by NBU's state ownership supports. NBU's public policy role results in strong sovereign support, including guarantees for foreign debt obligations and state-directed lending and a commitment to ensure adequate capitalization. NBU also has a leading market position and franchise in Uzbekistan.

NBU's primary public policy role is to support foreign trade, encourage the development of export-oriented industries, and facilitate foreign direct investment. These activities fit within the Uzbek government's broader policy goals, which have historically favored state-directed import substitution—the development of domestic industries behind trade barriers.

NBU remains the state's most important bank, with a 40% market share by assets. The finance minister chairs NBU's supervisory board. NBU's partial privatization is planned for 2010, according to a government decree.

The stable outlook balances NBU's high credit risk with our expectation of continued strong sovereign support and ownership.

"We are unlikely to raise the ratings without an improvement in the sovereign's creditworthiness," Tarzimanov said.

Ratings downside would stem from weakening support from the sovereign, accompanied by a change in the bank's role to a more commercial business profile and its failure to improve its risk management accordingly. Weaker sovereign creditworthiness would also put downward pressure on the ratings.