Fitch improves outlook on Ipoteka Bank to positive

Fitch Upgrades Ipoteka Bank's Outlook to "Positive"

The international rating agency Fitch Ratings has revised the outlook on the long-term issuer default ratings (IDRs) of Ipoteka Bank from "Stable" to "Positive", while affirming the bank's foreign and local currency ratings at "BB".

Fitch also affirmed Ipoteka Bank's shareholder support rating at "bb" and upgraded the bank's viability rating from "b" to "b+".

The revision of the outlook is linked to a similar recent change in the outlook on Uzbekistan's sovereign rating.

Fitch attributed the upgrade of the bank's viability rating to an improved operating environment for Uzbek banks, Ipoteka Bank's progress in resolving asset quality issues, a recovery in sustainable profitability, and a significant strengthening of capitalization.

Fitch expects the positive momentum to continue in the near term.

Ipoteka Bank's ratings also take into account potential support from its parent entity, OTP Bank Plc. In assessing OTP's ability and willingness to provide support, the agency considered the majority stake, the bank's integration into OTP's resolution group, potential reputational risks for the parent company in the event of a subsidiary bank default, and the relatively low cost of providing the necessary support.

At the same time, Ipoteka Bank's shareholder support rating and long-term foreign currency IDR are constrained by Uzbekistan's country ceiling of "BB". Fitch attributes this to potential restrictions on capital transfer and currency conversion, which could hinder the use of parent bank support to service foreign currency obligations.

Fitch revised its assessment of the operating environment for Uzbek banks from "b"/ "positive" to "b+"/"stable". The agency noted progress in reforming the banking sector over the past two years, particularly the strengthening of regulation and the management of legacy risks.

An additional factor was Uzbekistan's economic growth. In the first half of 2026, the country's GDP grew by 8.5% year-on-year. According to Fitch, the improved operating conditions in the banking sector, combined with high economic growth rates, should support further business expansion, profitability, and the banks' ability to generate capital internally.

Ipoteka Bank is the seventh-largest bank in Uzbekistan. At the end of the first half of 2026, its share was about 6% of the banking sector's assets. At the same time, the bank holds a leading position in the mortgage lending market with a 21% share. More than 80% of its gross loan portfolio consists of retail loans.

OTP Bank owns 73% of Ipoteka Bank's shares. According to Fitch, OTP's involvement has contributed to improving corporate governance and implementing the bank's strategy. An additional factor was the International Finance Corporation's acquisition of a 9% stake in Ipoteka Bank as a result of a credit line conversion.

The bank's lending growth in 2025 was moderate at 6%. This occurred against the backdrop of debt write-offs and repayments of corporate loans. Fitch forecasts loan portfolio growth to accelerate to 15% in 2026, driven primarily by retail lending.

At the same time, the reduction of foreign currency risks continues. The share of foreign currency loans at the end of the first half of 2026 decreased to 14%, compared to the banking sector average of 39%.

Ipoteka Bank has also aligned its risk management system with OTP's approaches, which, according to Fitch, has improved the quality of new loans. However, the agency notes that the new borrower assessment standards have not yet been tested through a full credit cycle.

Loan portfolio quality remains one of the bank's weak points, but indicators are improving. The share of Stage 3 impaired loans under IFRS 9 decreased to 19.7% at the end of 2025 from 23% at the end of the first half of 2024.

Fitch expects the figure to continue declining and drop below 13% by the end of 2026. This will be driven by the further resolution of legacy non-performing assets and the resumption of loan growth.

The share of Stage 2 loans also decreased to 8.4% at the end of 2025, compared to 17.8% a year earlier. Fitch views this as evidence of limited risk of new non-performing loan formation.

In 2025, the bank's provisions covered 0.8 times the volume of impaired loans. Fitch considers this level acceptable, given the availability of collateral for a portion of the non-performing loans.

The agency expects Ipoteka Bank's high profitability to be sustained. According to the forecast, the ratio of operating profit to risk-weighted assets will exceed 6% in 2026, compared to 5.8% in 2025.

Results will be supported by margin expansion, improved operational efficiency amid business growth, and recoveries of previously written-off loans. Fitch considers the decline in net interest margin from 9% in 2024 to 7.6% in 2025 to be temporary and attributes it to rising funding costs.

In 2026, the net interest margin, under Fitch's base case forecast, could recover to 8% amid declining deposit rates. The cost-to-income ratio is expected to be around 45%, compared to 48% in 2025.

The bank's capitalization has also strengthened significantly. The Fitch Core Capital ratio rose from 12% at the end of 2024 to 18.5% at the end of 2025. This was driven by the bank's strong capital generation capacity, the absence of dividend payments, and a reduction in risk-weighted asset density following the resolution of non-performing loans.

Fitch forecasts the ratio to grow further to approximately 22% by the end of 2026. The main drivers will be high profitability, earnings reinvestment, and the recent acquisition of newly issued shares by the IFC.

The CET1 Tier 1 capital adequacy ratio stood at 17.6% at the end of the first half of 2026, compared to 17.3% at the end of 2025. This figure significantly exceeds the minimum requirement of 9.5%, providing the bank with a substantial buffer to absorb potential losses.

At the same time, Ipoteka Bank remains dependent on non-deposit funding. At the end of 2025, the loan-to-deposit ratio was 229%, and Fitch expects it to decline in 2026, though the figure will remain above 200%.

State funding remains the bank's primary source of funds. At the end of the first half of 2026, state-related long-term funds accounted for 39% of Ipoteka Bank's liabilities. Another 21% came from market borrowings, and 35% from non-state deposits.

Fitch assesses the bank's liquidity as adequate. At the end of the first half of 2026, liquid assets covered half of the non-state funding volume. In addition, Ipoteka Bank has access to liquidity support mechanisms from OTP.

An upgrade of the bank's ratings is possible following an upgrade of Uzbekistan's country ceiling, provided that OTP's ability and willingness to support Ipoteka Bank remain intact or improve.

An upgrade of the viability rating would require further improvement in the operating environment, continued reduction of legacy non-performing assets, and the maintenance of high profitability and robust capitalization.

Conversely, the rating could be downgraded in the event of a downgrade of Uzbekistan's country ceiling or a significant weakening of OTP's ability or willingness to support its subsidiary bank. The viability rating could also deteriorate in the event of a significant decline in profitability or asset quality.

Fitch identifies another risk factor as the FCC ratio falling below 10% due to excessively rapid loan growth or an aggressive dividend policy, although this scenario is not the agency's base case forecast.

Ipoteka Bank's short-term foreign and local currency IDRs have been affirmed at "B". The senior unsecured debt rating corresponds to the bank's long-term foreign currency IDR of "BB".