Uzbek Banking Sector Shows Significant Improvement

Strategic Insights -

The Uzbek banking sector has experienced a substantial strengthening of its operating environment over the past two to three years, driven by regulatory reforms, improved governance, and efforts to address structural risks. These measures, combined with robust economic growth, are expected to underpin loan growth, earnings, and capital generation. Fitch Ratings has revised the operating environment score for Uzbek banks to positive, reflecting the likely improvements.

Key Takeaways:

  • The Uzbek government's reform agenda is expected to continue, with further regulatory enhancements and a clean-up of asset-quality risks.
  • The operating environment score for Uzbek banks has been revised to positive from stable, reflecting the expected improvements.
  • Fitch forecasts real GDP growth of 6.3% in 2025 and 2026.
  • Loan growth, earnings, and capital generation are expected to be underpinned by the improving operating conditions.
  • The Central Bank of Uzbekistan has taken steps to enhance financial transparency, raise capital requirements, and address legacy weaknesses.
  • Banks have been required to recognize and provision for problem loans, and restrictive measures on retail lending have curbed overheating risks.
  • Sector dollarization has been falling, with the proportions of foreign-currency loans and deposits at record lows of 42% and 24%, respectively, at end-1Q25.
  • The share of state-subsidized lending in outstanding loans has recently fallen further, to 23% in April 2025 from 28% in June 2024.
  • The regulatory non-performing loans ratio was a low 4% at end-1Q25.
  • Asset-quality pressures have resulted in only modest sector profitability (7% in 2024).
  • The total capital adequacy ratio was about 18% at end-1Q25.
  • The government has intensified efforts to privatize several large state-owned banks, including the transfer of large minority stakes in policy banks to the National Investment Fund.

Statistics:

  • Fitch forecasts real GDP growth of 6.3% in 2025 and 2026.
  • Sector dollarization has fallen to 42% for loans and 24% for deposits at end-1Q25.
  • The share of state-subsidized lending in outstanding loans has fallen to 23% in April 2025 from 28% in June 2024.
  • The regulatory non-performing loans ratio was 4% at end-1Q25.
  • Asset-quality pressures have resulted in sector profitability of 7% in 2024.
  • The total capital adequacy ratio was about 18% at end-1Q25.
  • The Central Bank of Uzbekistan has required banks to provision for problem loans and has implemented restrictive measures on retail lending.

Sources:

  • Fitch Ratings: The Uzbek bank operating environment has strengthened significantly over the past two to three years, driven by regulatory reforms, improved governance and ongoing efforts to address structural risks.
  • Fitch Ratings: We expect the government's reform agenda to continue in the near term, with further regulatory enhancements and an ongoing clean-up of asset-quality risks.
  • Fitch Ratings: Fitch recently changed the outlook on its 'b' operating environment (OE) score for Uzbek banks to positive from stable to reflect the likely improvements.
  • Reuters: Fitch says Uzbek banking sector has improved, upgrades ratings.
  • Central Bank of Uzbekistan: Financial transparency, capital requirements, and legacy weaknesses addressed.
  • Franklin Templeton: Global asset management firm to manage National Investment Fund.