Uzbekistan’s banking sector is under increasing scrutiny as non-performing loans (NPLs) become a critical indicator of financial stability. As of 1 October 2024, the country’s 36 banks—nine state-owned and 27 private—collectively manage $1.68 bn in NPLs, reports the Central bank.
Among these banks, Ipoteka-bank, with $339.43 mn in NPLs, faces significant challenges in managing credit risk, while others, like KDB Bank Uzbekistan, maintain zero NPLs, demonstrating robust risk management practices. Performance varies significantly between state-owned and private institutions, with private banks generally showing stronger credit controls.
State-Owned Banks (9 Banks)
Uzbekistan’s state-owned banks manage some of the largest loan portfolios in the country and face substantial challenges in controlling non-performing loans. National Bank of Uzbekistan (NBU), the largest state-owned bank, has a loan portfolio of $8.21 bn and an NPL ratio of 2.85%, the lowest among state-owned banks. This reflects an improvement from the previous year’s NPL ratio of 3.21%, highlighting better credit management. Uzpromstroybank follows with a loan portfolio of $4.91 bn and an NPL ratio of 3.09%, up from 2.82% the previous year, indicating the need for stronger credit management despite a growing loan book.
Agrobank, with a loan portfolio of $4.68 bn and an NPL ratio of 3.46%, has seen slight improvement from its previous NPL ratio of 3.55%, showing progress in managing credit risk. Asaka Bank, however, has experienced a slight rise in its NPL ratio to 4.77%, with a loan portfolio of $2.94 bn, indicating ongoing challenges in loan recovery. People’s Bank (Xalq Banki) has made significant progress, reducing its NPL ratio from 9.15% in 2023 to 5.31% in 2024, with a loan portfolio of $2.26 bn, reflecting the effectiveness of its improved risk management practices.
Other state-owned banks like Qishloq Qurilish Bank (QQB) maintain a stable NPL ratio of 2.78%, managing a loan portfolio of $2.94 bn, which places it among the better-performing state-owned institutions. Mikrokreditbank, with an NPL ratio of 3.82% and a loan portfolio of $1.76 bn, has managed to keep its non-performing loans relatively stable. Turonbank, with an NPL ratio of 2.32% and a loan portfolio of $710 mn, is one of the better performers in terms of loan quality management within the state-owned segment.
Private Banks with High NPL Ratios: Ipoteka-bank, Madad Invest Bank, Garant Bank, and Iranian Saderat Bank in Tashkent
Several private banks are facing higher-than-average NPL ratios, highlighting significant challenges in managing credit risk. Ipoteka-bank, which recently transitioned from state-owned to private, holds the highest NPL ratio among private banks at 12.3%. With a loan portfolio of $5.67 bn, Ipoteka-bank’s $339.43 mn in NPLs underscores ongoing issues with loan recovery, despite increased loan loss reserves.
Madad Invest Bank has the highest NPL ratio in the private sector at 17.3%, indicating serious weaknesses in risk management that require immediate attention. Garant Bank, with an NPL ratio of 14.9%, also faces significant credit risk challenges, while Iranian Saderat Bank in Tashkent has an NPL ratio of 8.7%, reflecting a need for stronger controls to prevent further loan deterioration.
KDB Bank Uzbekistan: The Private Bank with Zero NPLs
On the opposite end of the spectrum, KDB Bank Uzbekistan maintains zero NPLs, setting a benchmark for credit management across the banking sector. With a loan portfolio of $1.32 bn, KDB Bank Uzbekistan’s performance reflects exceptional risk assessment and stringent credit policies, positioning it as one of the best performers in Uzbekistan’s financial sector.
State-Owned vs. Private Banks: A Comparative Analysis
When comparing state-owned and private banks, important differences emerge in how they manage credit risk. State-owned banks, such as NBU and People’s Bank, face greater exposure to riskier sectors due to their larger portfolios. For instance, NBU maintains the lowest NPL ratio among state-owned banks at 2.85%, while People’s Bank has significantly reduced its NPL ratio to 5.31% from 9.15%, signaling improved credit management. On the other hand, Ipoteka-bank, with its 12.3% NPL ratio, continues to struggle with loan recovery, despite its privatization.
Private banks tend to perform better in terms of credit risk management, with KDB Bank Uzbekistan leading the way with zero NPLs. Kapitalbank, with an NPL ratio of 1.67%, and Trustbank, with a very low NPL ratio of 0.22%, also demonstrate effective loan management and risk mitigation. However, private banks like Madad Invest Bank (17.3%) and Garant Bank (14.9%) highlight that some institutions still face significant challenges in managing non-performing loans.
Conclusion: Addressing the NPL Challenge for Financial Stability
Uzbekistan’s banking sector presents a varied performance in managing non-performing loans. While KDB Bank Uzbekistan sets an industry benchmark with zero NPLs, other banks, both state-owned and private, continue to grapple with high NPL ratios. Ipoteka-bank, Madad Invest Bank, Garant Bank, and Iranian Saderat Bank in Tashkent are among those facing the greatest challenges, signaling a need for enhanced credit management practices.
The European Central banks states that effective NPL management, which includes stronger credit controls and improved loan recovery processes, are essential for ensuring long-term financial stability in any country's banking sector.
In February 2024, the Central Bank of Uzbekistan’s Risk Oversight Committee reviewed several key issues that could directly impact banks’ non-performing loan (NPL) performance. By addressing financial health and compliance, the committee imposed sanctions on three banks and issued warnings to six others for not adhering to Central Bank standards, pushing for stronger risk management and adherence to prudential norms. Additionally, guidance was provided for banks and microfinance institutions to address financial weaknesses, enhance internal controls, and follow financial standards rigorously. The CBU states, “specific instructions were issued to bank management to address identified weaknesses, develop corrective measures, adhere to prudential standards, and improve financial health.” The bank says that these actions aim to encourage banks to improve their loan recovery processes, ultimately impacting NPL levels across the sector.
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