Moody's downgrades Agrobank's deposit ratings to Caa1; outlook stable
Global Credit Research - 16 Apr 2013

London, 16 April 2013 -- Moody's Investors Service has today downgraded the long-term local- and foreign-currency deposit ratings of Uzbekistan's Agrobank to Caa1 from B3. Moody's has also lowered the bank's baseline credit assessment (BCA) to ca from caa1, within the E standalone bank financial strength rating (BFSR) category. At the same time, the rating agency affirmed the E standalone BFSR and the Not Prime short-term deposit rating.

The outlook on all long-term ratings is now stable.

Today's rating action is driven by Agrobank's failure to address material capital and liquidity shortfalls related to fraud which was identified in 2011. As a consequence, the bank capital base remains fully depleted and Agrobank continues to depend on ongoing external support from the Uzbekistan authorities to sufficiently fund its operations. Today's action also captures Moody's view that there is a high probability that such external support -- in the form of liquidity and/or regulatory forbearance -- will continue.

......RATINGS RATIONALE

-- CAPITAL SHORTFALL

The primary factor for today's rating action is Agrobank's failure to address material capital shortfall as the recent share issuance did not raise sufficient new capital to address asset quality risks and restore the bank's capital base. In addition, Moody's believes that the bank has a limited ability to recover losses that resulted from the fraudulent activities identified in 2011. As a consequence, Agrobank's capital base remains fully depleted because of the misappropriation of funds totalling around UZS250 billion (USD126 million) (recorded as receivables from former employees) that accounted for around 100% of Agrobank's core capital as of 1 January 2013.

Under Agrobank's capital-raising plan for 2012, the bank had expected to raise UZS113 billion (an amount equivalent to less than 50% of problem non-core assets as of 1 January 2013), but it received only UZS41 billion of capital contribution from its shareholders. In Moody's view, which is based on historical observations, any prospects of future capital injections remain uncertain. Furthermore, the rating agency notes the risk that any capital contributions from Agrobank's shareholders over the next few years may not be sufficient to fully address the risk of capital shortfall.

Moody's notes that Agrobank has not recognised any losses from the fraudulent activity neither in its IFRS nor in the statutory reporting because it is seeking to recover losses through legal proceedings in Uzbekistan. Moody's scenario analysis considers the level of regulatory capital of 13.6% reported by the bank at YE2012 is misleading insofar as, in Moody's view, the bank is unlikely to recover the proceeds of the fraud....
(http://www.moodys.com/research/Moody...0moodysratings)