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Stanislav Dubko

Key trends in the banking sector

The banking sector of Uzbekistan has grown strongly and steadily over the last five years. Bank assets increased to almost 65% of GDP, which is higher than in Kazakhstan or Ukraine. At the same time, the sector continues to be dominated by state-owned banks, with 69% of bank assets in state ownership. So far, two banks have been privatised; the very ambitious reform agenda foresees the privatisation of most state-owned banks.


  • Uzbekistan
NL 26 | September - October 2023
Financial Markets

Lending to the private sector increased strongly, reaching 42% of GDP. Non-performing loans declined since the COVID-19 pandemic, reaching comfortable levels of 3.4%. The growing external debt and high dollarisation remain, however, an issue and pose a potential risk for the sector. Overall, the banking system of Uzbekistan has demonstrated high resilience to external shocks caused by the COVID-19 pandemic and the Russian invasion of Ukraine. However, the accompanying uncertainty impedes reform and privatisation efforts.

Strong banking sector growth

Uzbekistan’s banking sector experienced strong growth over the last five years with an increase of assets by around 11% p.a. in real terms. As a result, the banks’ assets have almost reached 65% of GDP, compared to 53% in 2018. The size of Uzbekistan’s banking sector in relation to GDP is now comparable to Belarus, larger than in Kazakhstan and Ukraine, but still much smaller than in Russia. Notably, the growth of Uzbekistan’s banking sector has been steadier than in any other country in the peer group.

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State ownership in banking sector still high

In May 2020, Uzbekistan launched a large-scale reform programme of the banking sector aimed at privatising several state-owned banks by end of 2025 through Initial Public Offerings (IPOs) or sale of banks’ shares to strategic investors. However, only two banks have been privatised during the first three years of the program. In part this may be attributed to the instability caused by the Russian invasion of Ukraine. As a result, the ten state-owned banks are still dominant, holding 69% of assets, 73% of loans and 52% of deposits. The Uzbek banking sector comprises a total of 35 banks.

In July 2023, Uzbekistan made changes to the banking system reform programme, extending the deadline for privatisation. However, the overall goal to drastically reduce state ownership of banks remains, with only three banks to remain majority government owned.

More lending to the private sector

Bank lending increased by 16% annually on average over the last five years in real terms. Most lending still goes to the industry; however, household lending is growing dynamically due to a boost in mortgage and car loans.

Over the last five years, lending to the private sector increased by an average of 29% annually in real terms, bringing the share of loans to the private sector in total loans to 84%. Loans to the private sector as share of GDP almost doubled from 24% in 2018 to 42% in 6M2023. By this parameter, Uzbekistan now reached the level of Russia. The strong rise in lending to the private sector illustrates the significant transformation of Uzbekistan’s economy.

Non-performing loans

Non-performing loans (NPLs) levels have been below 2% and thus remarkably low until mid-2020, when COVID-19-related shocks started to take effect. The NPL ratio culminated at 5.6% in October 2022 and has declined since. NPLs are still somewhat higher than before the COVID-19 pandemic, but at 3.4% in July 2023, quite low in regional comparison.

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Deposits with moderate growth

Over the last five years, deposits in local currency grew steadily – by around 15% annually in real terms. Deposits in foreign currency demonstrated a weaker growth over the same time period and showed strong volatility since May 2022, which can be explained by a sudden influx of funds from Russia. The rapid inflow was followed by a rapid decrease, with the deposits likely leaving the country again.

Adequate capitalisation and growing profitability

With 17% in July 2023, the capital adequacy ratio (CAR) was well above the Central Banks’s prudential norm of 13%. Bank profitability is at a good level; Return on Equity (ROE) was at 14.7% for 6M2023 and has been on the rise during the last three years. This was possible as banks managed to reduce NPLs.

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Relatively high external debt and dollarisation

The external debt of the banking sector has grown rapidly since 2018, reaching 14.3% of GDP in 2022. During the last three years, local banks started raising debt in foreign capital markets with three banks issuing Eurobonds. External debt also includes the inflows of deposits from Russia after the invasion of Ukraine. Against this background, external debt is expected to decline somewhat in 2023 as deposits leave the country again, but remains high by regional standards.

Dollarisation in the Uzbek banking sector decreased since 2018. However, as of June 2023, foreign currency still accounted for 33% of total deposits and 46% of total loans. In a regional comparison, dollarisation on the lending side is significantly higher than in the peer group. On the deposit side, it is comparable to Kazakhstan and Ukraine. Thus, despite progress dollarisation remains an issue, in particular on the lending side.

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Uzbekistan’s banking sector has demonstrated strong growth over the last five years, while showing relative immunity to external shocks. To continue this positive development path, the continuation of the ambitious reform agenda is essential, in particular concerning privatisation. In this respect, however, the external shocks are having an impact, which is particularly evident in the form of less interest from international investors, especially from Western countries. Despite the considerable efforts made so far, ultimately, progress on privatisation will determine the success or failure of reforms and the future development of the Uzbek banking sector.

This newsletter is based on the Policy Briefing Banking Sector Monitor Uzbekistan.

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