Uzbekistan’s financial sector remains heavily dominated by state-owned banks and plagued by underreported nonperforming loans (NPLs), despite years of reforms and rapid growth, according to the International Monetary Fund’s (IMF) first Financial Sector Assessment Program (FSAP) for the country. The IMF warns that persistent structural weaknesses—including directed lending, weak asset classification, and gaps in supervision—pose risks to long-term financial stability and could lead to significant fiscal burdens.
Strong Growth Momentum but Inflation and External Risks Persist
Since launching sweeping economic reforms in 2017—including exchange rate unification, price liberalization, and privatizations—Uzbekistan has achieved solid macroeconomic performance. Real GDP grew by an annual average of 5.7% between 2018 and 2023, supported by large capital inflows, remittances, and favorable trade terms.
In 2024, growth reached 6.5%, driven by strong activity in construction, industry, and services. Uzbekistan’s nominal GDP is projected to reach UZS 1,733 trillion ($139.7bn) in 2025, up from an estimated UZS 1,455 trillion ($117.3bn) in 2024, according to the IMF. GDP per capita is also expected to rise from $3,113 in 2024 to $3,487 in 2025. Inflationary pressures remain elevated, however, with consumer prices increasing 9.8% at the end of 2024, prompting the Central Bank of Uzbekistan (CBU) to raise the monetary policy rate in March 2025.
Uzbekistan’s economic projections for 2025–2030 indicate sustained and robust growth, underpinned by continued structural reforms and strong domestic demand. Real GDP growth is projected to average around 5.9% in 2025, gradually stabilizing at 5.7% through 2030, reflecting resilience despite global uncertainties.
Nominal GDP is expected to rise steadily from UZS 1,733 trillion ($139.7bn) in 2025 to UZS 3,277 trillion ($264.2bn) by 2030, driven by a combination of real output expansion and moderate inflation. Inflation is forecast to decline from 8.4% in 2025 to 5% by 2027, aligning with the CBU’s long-term monetary targets.
GDP per capita is projected to climb from $3,487 in 2025 to $5,193 in 2030, suggesting meaningful income growth and improving living standards. These projections reflect the IMF’s confidence in Uzbekistan’s reform momentum, fiscal discipline, and policy frameworks, while also assuming effective management of external risks and macro-financial vulnerabilities.
Financial Sector Expansion Led by State-Owned Banks
The financial sector has expanded rapidly since 2017, with total assets increasing ninefold in nominal terms and reaching 55.8% of GDP by end-2024, up from 33.4% in 2017. The system remains highly bank-centric, with banks holding 95% of all financial system assets.
However, the sector is dominated by state-owned commercial banks (SOCBs), which control 62% of banking assets, despite the privatization of three SOCBs in 2023–2024 and the ongoing sale of four others. Nine SOCBs remain active and serve key sectors of the economy, such as industry, agriculture, and government programs.
Directed and preferential lending—where loans are provided to state-owned enterprises (SOEs) and priority sectors at below-market rates—continues to distort credit allocation. Although the share of such lending has declined from 39% in 2020 to 24% of total loans by end-2024, it still presents a significant fiscal burden and weakens risk assessment incentives.
From 2017 to 2023, the government spent $5.8bn (equivalent to 5% of annual GDP) on recapitalizing SOCBs. SOCBs remain subject to lending targets and social policy mandates, reducing their commercial viability.
Stress Tests Reveal Hidden Vulnerabilities and Capital Shortfalls
While headline performance indicators for the banking system are positive, stress testing reveals serious underlying vulnerabilities. As of 2024, the system-wide Capital Adequacy Ratio (CAR) stood at 17.4%, well above the 13% minimum, and the nonperforming loan (NPL) ratio was reported at 4.0%. Return on assets (ROA) was 1.4%.
However, breakdowns show stark differences between SOCBs, domestic private banks, and foreign-owned banks. SOCBs reported an ROA of just 0.1% and had a lending-to-deposit ratio of 237.2%, while domestic private banks reported an ROA of 5.1% and a much healthier lending-to-deposit ratio of 101%. Foreign-owned banks had higher NPLs at 7.5%, but greater liquidity resilience, with liquid assets accounting for 28.8% of their total.
Stress tests conducted by the IMF found that under an adverse macroeconomic scenario—featuring a sharp GDP decline, som depreciation, and reduced commodity exports—the system-wide CAR would drop to 9.9%, triggering a capital shortfall of UZS 48 trillion ($3.9bn) (2.2% of GDP). When adjusted for underreported NPLs and subordinated debt exclusions, the shortfall rises to UZS 79 trillion ($6.3bn) (3.6% of GDP).
Five of the nine SOCBs would fall below minimum capital thresholds. Further tests of currency-induced credit risk, simulating a 30% depreciation of the som, revealed that several SOCBs would become undercapitalized due to their large foreign currency loan portfolios. FX lending accounts for 42.9% of total bank loans, and 48.3% for SOCBs. Most borrowers lack natural hedges, amplifying credit risk.
Liquidity stress tests showed that the system, in aggregate, maintains positive cashflow gaps under both baseline and adverse scenarios. However, individual banks—especially those with highly concentrated depositor bases—could face challenges. Liquidity coverage ratios are generally above 100%, but the IMF cautioned that enhancements are needed to better account for risk and currency mismatches. Foreign currency funding comprises over 50% of obligations for SOCBs.
Another area of concern is the quality of reported loan data. According to international financial reporting standards (IFRS 9), Stage 3 loans (i.e., true NPLs) accounted for 7.8% of total loans in 2023, nearly double the regulatory figure of 4.0%. Substandard loans reached 17.3%, and as high as 21.5% in SOCBs. Restructured loans, often classified as “standard,” remain high, particularly in agriculture and industry, raising questions about the true scale of distressed assets.
The IMF also analyzed corporate sector vulnerabilities. While group averages suggest healthy finances, several firms—especially in agriculture and construction—show persistent losses and weak interest coverage ratios. Private enterprises have stronger equity positions compared to majority state-owned firms, which account for a large share of highly leveraged companies.
Regulatory Gaps, Oversight Challenges, and Reform Needs
Uzbekistan has taken steps to strengthen financial sector oversight. The CBU has made progress in developing a macroprudential policy framework, establishing a Financial Stability Department in 2021 and adopting a Macroprudential Policy Strategy in 2023. However, financial stability remains a shared objective between the CBU and the government, which may create coordination challenges. A new Financial Stability Board is planned to serve as an inter-agency body for crisis prevention and management, with the CBU as its secretariat.
On banking supervision, the IMF recommended safeguarding the CBU’s operational independence. Current laws require approval from the Ministry of Justice and the Chamber of Commerce for new regulations, which weakens autonomy. Additionally, the CBU’s supervisory practices need improvement: inspections are limited to 30 days, consolidated supervision is not yet implemented, and capital definitions deviate from Basel III standards. For example, subordinated debt is not loss-absorbing, and no capital surcharges are in place for domestic systemically important banks (D-SIBs).
The anti-money laundering (AML) and counter-terrorism financing (CFT) framework, last evaluated in 2022, is broadly effective but requires enhancements. These include stronger penalties for legal entities, better beneficial ownership transparency, and monitoring risks related to virtual assets.
Crisis management frameworks are being modernized. A new Bank Resolution and Liquidation Law (BRLL), approved in April 2025, introduces tools like bail-ins, bridge banks, and asset transfers. A new deposit insurance law enacted in February 2025 eliminates blanket guarantees, mandates bank participation, and shortens payout periods. The authorities are also working to operationalize Emergency Liquidity Assistance (ELA), with plans to expand access from three to six months and align interest rates with global standards.
The World Bank provided additional recommendations related to capital markets, insurance, and financial inclusion. Capital markets remain underdeveloped, with limited corporate bond issuance and weak investor demand. Insurance regulations often rely on general corporate law, ignoring industry-specific risks. The microfinance sector has grown rapidly, but oversight remains limited, raising concerns about regulatory arbitrage and consumer protection. The CBU was urged to extend its supervisory reach to all nonbank lenders and microfinance banks, ensuring alignment with financial stability goals.
The IMF advised that state involvement in the financial sector should be further reduced. SOCB privatization should resume using transparent, sequenced strategies, starting with accurate reporting of asset quality and governance improvements. Directed and preferential lending should be phased out in favor of market-aligned instruments like grants, guarantees, or subsidies administered through transparent platforms. The current practice of mixing social credit programs with commercial bank operations reduces accountability and impairs credit risk management.
Uzbek authorities welcomed the FSAP and agreed with most of the recommendations. The CBU emphasized its efforts to reduce NPLs and strengthen macroprudential oversight. Officials acknowledged implementation challenges—particularly regarding the new legal frameworks for deposit insurance and resolution—but expressed commitment to completing reforms and requested technical assistance to sequence next steps effectively.
While reforms have delivered growth, resilience, and modernization, the state’s continued dominance, regulatory misalignments, and weak asset transparency pose risks. Fully implementing the FSAP’s recommendations will be vital for ensuring long-term financial stability and supporting the country’s broader transition to a market-based economy.
Non-Performing Loans and Privatization Efforts in Uzbekistan
Uzbekistan’s banking sector is facing rising pressure from non-performing loans (NPLs), which have continued to grow in both state-owned and private banks. As of January 1, 2025, total NPLs reached UZS 21.2 trillion (approximately $1.6bn), marking a 27.5% year-on-year increase. This rise includes an additional UZS 4.5 trillion in problem loans within a single year.
State-owned banks accounted for the largest share, with UZS 14.34 trillion in NPLs. Among them, Xalq Banki managed to reduce its NPL ratio from 7.6% to 4.2% through targeted clean-up efforts worth UZS 601 billion. Meanwhile, private banks saw a significant jump as well, with their NPLs reaching UZS 6.84 trillion—an increase of UZS 3.49 trillion compared to the previous year.
Earlier data from October 1, 2024, showed NPLs across the sector totaling UZS 22 trillion, or roughly 4.2% of total loans issued. The NPL ratio for state-owned banks stood at 4.1%, while private banks experienced a slight increase from 4.2% to 4.4%. These trends highlight the broader challenge of maintaining loan quality across the banking system, especially as credit expansion continues. Overall, while both sectors are affected, state banks remain the larger source of problematic loans, adding further urgency to ongoing reform efforts.
In parallel, Uzbekistan’s path toward privatization began in 2019 through a series of presidential decrees aimed at transitioning from a state-dominated to a market-driven economy. These reforms intensified in 2020 under President Shavkat Mirziyoyev’s “New Uzbekistan” agenda, with a bold plan to privatize 620 state-owned enterprises (SOEs), including major players like Uzbekneftegaz and the Navoi Mining and Metallurgical Company.
Significant milestones followed. In 2021, the government privatized the cotton sector and advanced reforms in wheat production. That year also saw the sale of the Coca-Cola bottling plant to Turkey’s CCI and over $250mn in deals during an investment forum. In 2022, Hungary’s OTP Bank acquired a 75% stake in Ipoteka Bank, marking a major shift in banking sector reforms. Privatization efforts also extended to real estate, with properties like Hotel Uzbekistan put up for sale.
To accelerate progress, Uzbekistan has set targets for 2025: sell state assets worth UZS 30 trillion ($2.3bn), generate UZS 10 trillion ($772mn) in budget revenue, and privatize 116 enterprises, 581 real estate properties, and 300 mines and fields. Policy changes now allow long-term renters to buy state property directly and provide discounts on unsold assets. The government also plans to list 28 enterprises internationally in 2024 and 10 more in 2025.
President Mirziyoyev continues to emphasize transparency, fair competition, and investor confidence as key to successful privatization. A nationwide expansion of Tashkent’s land privatization model and regular progress monitoring by the Prime Minister are expected to drive the reforms forward.
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