This view is based on the state majority ownership, systemic importance (UPSB and Asaka), the banks' policy roles (to a lesser extent at MCB) and the track record of capital and liquidity support.
The affirmation of UPSB's and Asaka's VRs at 'b' reflects their reasonable performance and asset quality metrics, helped by the access to better-quality public-sector corporates (from oil & gas, chemical, auto industries) and loan repayments under state guarantees, which cover on average 58%-60% of loans at both banks.
Loan books are more concentrated and dollarised at UPSB (87%) and Asaka (78%), although underlying risks are mitigated by the availability of state guarantees or the exporting borrowers' foreign-currency revenues.
Profitability metrics (net of one-off FX-revaluation gains, linked to the sharp local currency devaluation in 2017) remained moderate at UPSB and Asaka with pre-impairment profit to average equity ratio of around 12% and 9%, respectively, reflecting the mostly low-margin state-directed nature of the banks' operations.
Capitalisation was strong at all four banks, with the Fitch Core Capital (FCC) to risk-weighted assets ratio 19% at UPSB and Asaka, 31% at MCB and FCC to total assets ratio at 27% at Agro.
Given USPB's and Asaka's significant involvement in directed lending, the share of government-related funding is particularly high at both banks (UPSB: 80% of liabilities, including government-guaranteed external borrowings of 25%, at end-2017; Asaka: 47%).