As of November 1, 2023, Uzbekistan's banking sector is grappling with the challenge of problem loans, as revealed in the latest report on loan portfolios. The report provides insights into the overall health of the banking industry, shedding light on the extent of non-performing loans (NPLs) across various financial institutions.
Total Landscape
The total loan portfolio across all banks stands at UZS 460.4 trillion (over $37.4bn), with a 3.6% classified as problem loans. This figure prompts a closer examination of the banks with state shares and those categorized as 'Other banks.'
Banks with State Shares
Banks with state shares have a total loan portfolio of UZS 329.5 trillion (around $27bn), out of which UZS 13.069 trillion (over $1bn) are classified as problem loans, accounting for 4.0%. Notable contributors to NPLs among state-owned banks include:
National Bank of Uzbekistan: The largest state-owned bank, with a loan portfolio of UZS 95.8 trillion (around $7.8bn), has UZS 3.1 trillion (over $252mn) categorized as problem loans, representing 3.2%.
SQB: With a loan portfolio of over UZS 56 trillion (over $4.5bn), it faces UZS 1.538 trillion (over $125mn) in NPLs, comprising 2.7%.
Agrobank: Holding a loan portfolio of around UZS 54.9 trillion (around $4.5bn), Agrobank reports UZS 1.89 trillion (around $154mn) as problem loans, reflecting a 3.5% share.
Asaka Bank: With a loan portfolio of UZS 40.245 trillion (over $3.2bn), Asaka Bank has UZS 1.8 trillion (around $150mn) in problem loans, constituting 4.6%.
Investment Banking Director of Alkes Research, Bekhruzbek Ochilov commented saying,
"Non-performing loans (NPLs) at major Uzbek banks may experience a significant increase, potentially reaching two to three times their current levels. This projection is attributed to several factors. Firstly, the substantial margins between credits and deposits in Uzbek banks create room for higher NPLs in the current market. Secondly, a closer look at the statistics reveals that the reported NPLs may not accurately reflect the overall situation. Most of the top banks, particularly the top seven, predominantly deal with corporate loans, excluding retail loans from their portfolios. Retail loans are primarily associated with government-subsidized programs, contributing to NPLs for other banks. For banks like Xalq Banki, Asaka, and NBU, a significant portion of their NPLs stems from corporate loans rather than retail. Notably, Garantbank and Octobank, which exhibit higher NPLs, are also driven by corporate rather than retail loans. By excluding corporate loans and government-subsidized NPLs from the statistics, a more accurate reflection of the real NPL situation emerges, estimated to be between 1.5 to 2.5%. This suggests that there is considerable potential for NPLs to expand further."
Xalq Banki's Dilemma
Xalq Banki stands out with a loan portfolio of UZS 24.104 trillion (around $2bn), of which UZS 2.138 trillion (around $174mn) are categorized as problem loans, reflecting a significantly higher share at 8.9%.
Private banks account for UZS 130.962 trillion (around $11bn) in the total loan portfolio, with UZS 3,708 trillion (over $301mn) marked as problem loans, constituting 2.8%.
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Several banks emerge as noteworthy performers in maintaining a lower share of problem loans:
Kapitalbank: A significant player with a loan portfolio of over UZS 24.8 trillion (over $2bn), Kapitalbank impressively reports 1.2% in problem loans.
HamkorBank: Another major player, HamkorBank, has a loan portfolio of over UZS 15 trillion (over $1.2bn), with problem loans at 0.8%.
Ipak Yuli Bank: Presenting a solid performance, Ipak Yuli Bank holds a loan portfolio of around UZS 11 trillion (over $893mn), with 2.4% classified as problem loans.
Challenges in the Industry
While many banks maintain relatively low NPL percentages, some face considerable challenges, such as Garantbank (18.9%), Oktobank (84.0%), and Saderat Bank Iran (19.7%).
The question arises: If the share of NPLs is decreasing, yet some banks have nearly 84% of NPLs, should they be suspended? In response, Avesta Investment Group partner Karen Srapionov stated,
"CB probably investigating the problems of Octo and others, and they have some explanation for this, but it's a problem. Hi-tech and Turkiston had the same level of NPL before losing the license. Probably, the new owner of Octo explained their plan of additional capitalization of the bank to CB."
Earlier Daryo reported that there has been a notable rise in individual participation in the banking system. In the first half of the preceding year, individuals accounted for 22.5% of the credit portfolio, witnessing a year-on-year increase to 28.6%, marking a 6% point surge. Meanwhile, the share of legal entities declined from 77.5% to 71.4%.
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