In addition to the Banking System Outlook, which focuses on performance measures and forward-looking rating drivers for the Uzbekistan banking system, Moody’s has also published the first ’Banking System Profile’ report for Uzbekistan. The Profile forms part of a new series of reports on banking systems throughout the world, which are designed to complement Moody’s Banking System Outlook reports by serving as descriptive reference guides to key structural factors that are reflected in Moody’s bank credit ratings.

In the context of an economy still dominated by state-controlled businesses, the penetration and the financial intermediation function of the Uzbek banking system are currently low. However, Moody’s expects a number of measures to be adopted that should contribute to consumer market growth and help increase the level of savings and investments.

The regulatory environment of the Uzbek banking system has been developing in recent years and has yielded some positive results, but the framework is still immature and has to be developed and tested further. "In Moody’s opinion, the Uzbek authorities may, under certain conditions, decide to provide systemic support to certain banks in distress, or to the whole banking system. This view takes into consideration regulatory practice within the Uzbek banking sector and its historical development," says Olga Ulyanova, a Moody’s Assistant Vice President-Analyst and author of the reports.

The significant structural weaknesses of the banking system include the still stark divide between large, stronger institutions and small, weaker players as well as the high level of concentration, as a result of which Moody’s expects to witness an increased pace in certain restructuring trends in the coming years, including the privatisation of large state-owned financial institutions, the acquisition of a number of local banks by foreign investors, as well as the consolidation of second-tier banks.

"Moody’s views positively the strong potential for system growth going forward -- particularly as regards expansion of banking for small and medium businesses, as well as for the retail segment. Nonetheless, at present, banking competition and sector restructuring are constrained by considerable administrative and regulatory pressures, notwithstanding their key role in closely monitoring financial institutions’ activities and preventing shortfalls and crises," Ms Ulyanova explains. "This is particularly relevant given that the corporate governance and risk management practices of Uzbek banks are still at an early stage of their development and the banks’ financial undamentals are volatile, partly stemming from the macroeconomic environment, although a degree of stabilisation has been noted in recent years."

At present, Moody’s rates two Uzbek banks: the National Bank for Foreign Economic Activity of the Republic of Uzbekistan (National Bank of Uzbekistan), which was assigned Ba3/NP/E+ ratings in December 2007, and Gallabank, rated B3/NP/E+ in April 2008. As Moody’s coverage of Uzbek banks expands, it will be updating the statistical information presented in its Banking System Outlook for Uzbekistan.