Uzbekistan’s efforts to privatize state-owned banks will face significant challenges and are likely to be postponed, according to Pavel Kaptel, Director of Financial Institutions at Fitch Ratings, speaking at the conference on April 16.
Kaptel emphasized that while the country’s banking reforms, initiated five years ago, have been aimed at privatizing eight major banks, progress has been slow.
“The privatization of several large banks, initiated in 2023–2024, has been delayed multiple times. A presidential decree issued in October 2024 rescheduled these plans to the end of 2025,” Kaptel stated.
Despite strong investor interest, the process remains uncertain. While the Uzbek government maintains plans to privatise SQB, Asakabank, and Aloqabank by the end of 2025, Fitch cautions that selling all three within that timeframe is ambitious.
“The government and banks are still negotiating deals. Our baseline scenario assumes that the full privatization of [some] banks will be difficult and likely postponed,” Kaptel explained.
One key aspect of the ongoing reform is the creation of the National Investment Fund, which has absorbed stakes in the banks. Kaptel views the fund’s management by an international firm as a positive step forward.
“This should help improve operational efficiency, strengthen governance, and enhance asset quality,” he noted.
Dollarization, Problem Loans, and Government Support
Kaptel highlighted several key risks in Uzbekistan’s banking sector, including the high level of dollarization. While recent data shows a downward trend, Uzbekistan’s dollarization rate remains one of the highest in the region, which poses risks for asset quality.
Another critical issue is the quality of assets within the banking system, especially state-owned banks, which hold the majority of problem loans. Fitch forecasts that problem loans will peak at 10% in 2025 before gradually declining.
Over the past five years, the government has provided around $2bn in capital support to state banks, representing about 2% of the sector’s total assets in 2024. Kaptel noted that this support has mostly gone to banks performing government functions.
A significant concern is the banking sector’s heavy reliance on external financing. State banks, in particular, depend on international financial institutions for about a quarter of their funding—a dependency far higher than that of private banks.
“Uzbekistan is the only country in the region with such a high reliance on external financing,” Kaptel said. “Although the loans are long-term and favorable, they present long-term vulnerabilities.”
Kaptel concluded by acknowledging that while the banking reforms have made strides, challenges remain.
NPLs in Uzbekistan
As of January 1, 2025, non-performing loans (NPLs) in Uzbekistan's commercial banks totaled UZS 21.2 trillion ($1.6bn), marking an increase of UZS 4.5 trillion ($346.6mn) or 27.5% over the year.
The volume of NPLs at state-owned banks reached UZS 14.34 trillion ($1.1bn), though performance varied among institutions. Xalq Banki notably decreased its NPLs by UZS 601bn ($46.3mn), cutting the share of bad loans in its portfolio from 7.6% to 4.2%. Microcredit Bank and Business Development Bank also reported modest declines in their NPL levels.
On the other hand NPLs at private and other banks increased by UZS 3.49 trillion ($268.8mn), bringing the total to UZS 6.84 trillion ($526.8mn) by the end of the year.
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